National Real Estate Exam Prepration

Barry makes a $150,000 offer on Pam’s home, subject to financing at 4%. Pam accepts Barry’s offer, but agrees only to 6% financing. Which of the following statements is INCORRECT concerning Pam’s acceptance?

A. it is a partial acceptance of the original offer
B. Barry is now the offeree
C. Pam rejected Barry’s offer
D. Pam may withdraw her offer at any time, prior to acceptance by Barry

>> CORRECT ANSWER IS: A

(general knowledge of contract law) The choice that is NOT true is the best answer for this question. An offer is either accepted or rejected; there is no such thing as partial acceptance. Therefore, partial acceptance is the BEST answer because it is incorrect. Counteroffers are NEW offers which reject (kill) the preceding offer. As such, it is true that Barry is now the offeree to Pam’s counteroffer. Like any offer, a counteroffer may be withdrawn at any time prior to acceptance.

 


If a tenant and a landlord enter into a 3-month lease that expires at the end of the year, which of the following is correct?

A. the lease may be oral
B. the tenant must give 30 days notice before terminating the lease
C. the landlord must give 30 days notice before terminating the lease
D. the lease will extend for another term if the party’s fail to provide proper notice

>> CORRECT ANSWER IS: A

(leases as contracts) This lease has a definite duration and a definite expiration–3 months. Therefore, this lease is an estate for years, and NOT a periodic tenancy. Note that an estate for years can be for any fixed term (days, months, years). An estate for years requires no notice to terminate because the termination date is specified in the lease contract. On the other hand, a periodic tenancy requires notice to terminate or the leasehold will continue for another term. Leases for less than a year may be oral without violating the statute of frauds. Therefore, the best and only correct answer is that the lease may be oral.

 


A listing broker receives an offer from a buyer. The broker presents the offer to his client/seller. The broker and the seller are elated when they notice a provision stating that the seller has 6 days to accept! However, despite the buyer’s representation, he withdraws the offer at the end of the 3rd day. The buyer is:

A. within his rights to withdraw the offer
B. liable for breaching the option
C. liable to the broker for a commission
D. liable at the discretion of the seller

>> CORRECT ANSWER IS: A

(general knowledge of contract law) In general, one may withdraw an offer at ANY time before it is accepted.  Note that a valid option contract is an exception to this general rule. However, an option contract requires consideration and mutual agreement to be enforceable. In this case, there is no mention of consideration or any prior agreement between the buyer and seller (the facts imply the seller was surprised by the 6 day provision). Therefore, the option is not enforceable, the seller has no remedy, and the buyer is not liable.

 


Which of the following is NOT essential to a valid sales contract?

A. competent parties
B. termination date
C. consideration
D. all of the above are essential

>> CORRECT ANSWER IS: B

(offers/purchase agreements) A termination date is NOT essential, but could be included in a sales contract.

 


A broker lists a property. A buyer makes an offer for less than the listed price. The seller makes a counter-offer, which the buyer rejects. Later, the seller informs the buyer that he will accept the buyer’s original offer. Which of the following statements is CORRECT?

A. the seller’s proposal to accept the buyer’s original offer is a new offer
B. the buyer is obligated to perform
C. the seller is obligated to perform
D. the seller must pay a commission to the broker

>> CORRECT ANSWER IS: A

(general knowledge of contract law) Once rejected, an offer (or counteroffer) dies and can no longer be accepted. Therefore, the seller’s proposal to accept the buyer’s original offer is itself a new offer that the buyer has the power to accept or reject. The seller is not obligated to perform or pay a commission because the buyer (even if ready, willing, and able) did not make an offer meeting the seller’s terms.


Vernon presents an offer to a seller, with the provision that it must be accepted within 72 hours. Under which of the following circumstances would the offer terminate?

A. Vernon dies before the seller accepts the offer
B. the seller resubmits the offer with a minor change as to settlement date
C. the seller proposes to wait a week before acceptance
D. any of the above would terminate the offer

>> CORRECT ANSWER IS: D
>> YOUR ANSWER IS: [[NONE]]

(offers/purchase agreements) If Vernon dies before the seller accepts the offer, the offer terminates. Both resubmitting an offer with a different settlement date, and proposing to wait a week before acceptance, are counteroffers. Counteroffers are new offers that terminate the original offer.


When a seller makes a counteroffer, which of the following statements is INCORRECT?

A. it is a partial acceptance of the original offer
B. the original offeror becomes the offeree in the counteroffer
C. it is a rejection of an earlier offer
D. it may be withdrawn at any time prior to acceptance

>> CORRECT ANSWER IS: A

(general knowledge of contract law) There is no such thing as a partial acceptance–either the offer is accepted, rejected, or a new offer is made through a counteroffer.


A purchaser receives equitable title to real estate:

A. by closing on the property
B. by signing a valid sales contract on the property
C. by accepting the deed to the property
D. by receiving an estoppel certificate from the seller

>> CORRECT ANSWER IS: B

(offers/purchase agreements) Equitable title is conveyed to the buyer when the seller signs the offer to purchase, thereby creating a sales contract. After closing and accepting the deed, the buyer receives legal title.


Helen listed her property for $145,000. Jim made an offer to purchase the property for $135,000. Helen made a counteroffer for $140,000. Which of the following statements is correct?

A. Helen’s counter offer is a partial acceptance of Jim’s original offer
B. Jim is the offeree in his original offer
C. Helen is the offeree in her original offer
D. In the original offer, Helen is the offeree

>> CORRECT ANSWER IS: D

(general knowledge of contract law) There is no such thing as a partial acceptance–an offer is either accepted, rejected, or it expires. Helen’s listing is NOT an offer; it is only an invitation to others to make offers (with some indication of what Helen wants). Therefore, the original offer was made by Jim (offeror) and the only true statement is that Helen is the offeree in the original offer.


To be legally binding, a real estate sales contract MUST contain a:

A. list of personal property
B. commission to be paid to the broker
C. property description
D. all of the above

>> CORRECT ANSWER IS: C

(offers/purchase agreements) Sales contracts must include a description of the property to be sold. The property address is sufficient for the sales contract; while deeds and titles require a legal description. Commission is agreed upon in the listing agreement, not the sales contract. Personal property may or may not transfer with the real property. Therefore, the best answer is property description.


If an individual defaults on a $100,000 mortgage and only $95,000 is received by the lender as a result of foreclosure, which of the following is true?

A. the lender must file a $5,000 judgment
B. the lender may be entitled to a $5,000 judgment
C. the lender cannot recover the $5,000
D. none of the above

>> CORRECT ANSWER IS: B

(mortgages/deeds of trust) In the situation described, the lender could file for a deficiency judgment against the original borrower and could recover the full amount, depending on the borrower’s other assets.


Which of the following is an investor in the secondary mortgage market?

A. VA
B. FHA
C. HUD
D. FNMA

>> CORRECT ANSWER IS: D

(sources of loan money) Only one of the choices is an investor that buys and sells mortgages in the secondary mortgage market–FNMA or the Federal National Mortgage Association. Others are GNMA (Ginnie Mae) and FHLMC (Freddie Mac).


Which of the following is NOT involved in the secondary mortgage market?

A. Federal National Mortgage Association
B. Government National Mortgage Association
C. Federal Housing Administration
D. Federal Home Loan Mortgage Association

>> CORRECT ANSWER IS: C

(sources of loan money) Of the choices provided, only the Federal Housing Administration (FHA) does not participate in the secondary mortgage market. The Federal National Mortgage Association is also known as Fannie Mae; The Government National Mortgage Association is also known as Ginnie Mae; and The Federal Home Loan Mortgage Association is also known as Freddie Mac. Recognize these programs, both when they are spelled out and when they are listed as acronyms.


The purpose of Regulation Z is to disclose:

A. interest rates
B. total interest
C. financing charges
D. the term of the loan

>> CORRECT ANSWER IS: C

(financing/credit laws) Regulation Z requires disclosure of all finance charges associated with the granting of a loan. Finance charges include interest rates, total interest, and the term of the loan. However, these are all individual components of the finance charge. Therefore, “financing charges” is the best answer.


Under Truth-In-Lending requirements, the mortgagee:

A. is regulated as to how much interest he may charge
B. must provide an accurate amortization schedule
C. must advise the borrower of the total interest paid if the loan is fully satisfied on the scheduled maturity date
D. must allow the loan to be assumed

>> CORRECT ANSWER IS: C

(financing/credit laws) Under the Truth-In-Lending law, the lender (mortgagee) is required to disclose to the borrower the cost of obtaining credit. Usury laws (state laws), not TILA, limit the amount of interest a lender may charge. While Truth In-Lending requires a lender to give a buyer the total interest to be paid, it does not require that the lender provide an amortization schedule, which is a breakdown of each payment into the amount paid to principal and interest. Finally, Truth-In-Lending does not address the issue of assumptions.


What is the biggest disadvantage to a lender when it forecloses on a mortgage?

A. it will not be able to collect from second trust holders
B. it cannot recover enough money to satisfy the existing debt
C. it is difficult to sell foreclosed property
D. the lender could assume the role of property manager

>> CORRECT ANSWER IS: D

(mortgages/deeds of trust) The bank does not want your house–they want your money. If they foreclose on the house and no one outbids them, the bank may become responsible for upkeep, maintenance, and management of the property, which is not their primary business.


The maximum interest rate charged for a home mortgage is most likely to be determined by which of the following?

A. federal laws
B. state laws
C. Federal Home Loan Bank Board
D. Federal Reserve

>> CORRECT ANSWER IS: B

(general concepts) The maximum interest rate that may be charged on a loan is governed by a state’s usury law.


A mortgage could include all of the following clauses, EXCEPT:

A. defeasance
B. alienation
C. subrogation
D. acceleration

>> CORRECT ANSWER IS: C

(mortgages/deeds of trust) A mortgage will generally contain all of the clauses mentioned, except for the subrogation clause. Subrogation clauses are commonly associated with an insurance policy. If your insurance company pays you, a subordinate clause provides the right to seek reimbursement from the other party. You subrogate (give) your rights to the insurance company.


A person who owns a fee simple estate could be subject to which of the following controls?

A. zoning and building codes
B. subdivision restrictions
C. escheat
D. all of the above

>> CORRECT ANSWER IS: D

(private controls) All of these are restrictions on private property. Zoning, building codes, and escheat are rights of the government. Restrictive covenants and subdivision restrictions are usually private in nature. Even though you own the property in fee simple, you are subject to all of the restrictions listed.


A gas station–located in an area that is currently zoned as residential–is destroyed in a windstorm. Which of the following is most likely to be true?

A. the owner may rebuild because the gas station was a legal non-conforming use
B. the owner must receive a variance in order to rebuild
C. the owner may not rebuild because the proposed use would be violate existing deed restrictions
D. the owner may not rebuild unless the zoning ordinance is amended

>> CORRECT ANSWER IS: B

(public controls based in police power) Even though the use was a legal non-conforming use, the owner may only rebuild if he/she obtains a variance. This is the general rule when non-conforming uses are destroyed. It is not enough for the zoning ordinance to be amended–it must be amended to permit commercial use (which is not likely, given the existing residential population).


A local government changed the zoning for a large parcel of property. As a result, the property decreased in value. The government:

A. must compensate the owners for the loss
B. must compensate the owners for the entire value of the property
C. need not compensate the owners at all
D. need not compensate the owners unless they contest

>> CORRECT ANSWER IS: C

(public controls based in police power) When property is re-zoned, the government is NOT required to pay the owners for the decrease in value. This is a valid exercise of the police power, NOT eminent domain. If the property had been taken under eminent domain, the government would be required to pay for it. A decrease in value alone is insufficient to trigger an inverse condemnation.


All of the following situations are examples of downzoning, except:

A. from single family dwellings to multi-unit apartments
B. from agricultural use to single-family dwellings
C. from single-family dwellings to a conservation area
D. both 1 and 2

>> CORRECT ANSWER IS: D

(public controls based in police power) Downzoning occurs when the zoning regulations are changed from a higher, more active use, to a lower less active use.


To qualify for a tax-deferred exchange, properties MUST:

A. have the same income
B. have different incomes
C. be of like-kind
D. have deeds in corporation names

>> CORRECT ANSWER IS: C

(commercial property/income property) The only way to qualify for a tax-deferred exchange is for the properties exchanged to be of like-kind. You could NOT trade or exchange a rental property for your personal residence. However, you could exchange a rental property for another investment property.


A buffer zone would most likely separate:

A. office space from retail space
B. light industrial from heavy industrial
C. open space from residential
D. residential from commercial

>> CORRECT ANSWER IS: D

(public controls based in police power) A buffer zone is used to separate two otherwise incompatible land uses. Of the choices, residential and commercial are the most incompatible and therefore the BEST answer.


A broker that is acting as a property manager could be:

A. an employee of the owner
B. a fiduciary
C. the principal in the agreement
D. both A and B

>> CORRECT ANSWER IS: D

(property management and landlord/tenant) A property manager is often controlled by an agency agreement between the property owner (principal) and the broker/property manager (agent). The agency relationship makes the property manager a fiduciary of the client (a position of trust and confidence which carries specified duties). Depending upon the terms of the contract and nature of the relationship, the broker could also be an employee or an independent contractor of the property owner. Therefore, a broker acting as a property manager is likely to be a fiduciary AND could be an employee of the property owner.


The right of a city government to take title to private property for public improvements is subject to all of the following, except:

A. the ownership interest held by the current owner
B. public purpose
C. economically profitable uses of the land by the owner
D. both 1 and 3

>> CORRECT ANSWER IS: D

(government rights in land) The exercise of eminent domain requires a public use and just compensation for the taken property. The ownership interests of the current owner and whether the use is economically viable is irrelevant.


The donation of real estate for public use is:

A. reverse condemnation
B. eminent domain
C. dedication
D. escheat

>> CORRECT ANSWER IS: C

(public controls based in police power) The question states the basic definition of a dedication.


Which of the following is an example of the police power of government?

A. escheat
B. eminent domain
C. taxation
D. building codes

>> CORRECT ANSWER IS: D

(government rights in land) The rights that a government withholds from private ownership are escheat, eminent domain, taxation and police powers. However, escheat, eminent domain, and taxation are explicit powers unto themselves, not derived from any other power. Of the listed choices, only zoning and building code restrictions are derived from the police powers of government.


Agency relationships include all of the following duties, EXCEPT:

A. obedience
B. notice
C. confidentiality
D. accounting

>> CORRECT ANSWER IS: B

(agency duties) Fiduciary duties include loyalty, obedience, disclosure, confidentiality, accounting, and reasonable care and due diligence. “Notice” is too vague and, therefore, the best answer choice when compared to the others.


Which of the following would create an agency relationship?

A. a broker accepts the listing to sell a friend’s home and agrees to a reduced commission
B. an individual gives written authority for a broker to buy, sell, or exchange his real property for a one year period
C. a duplex owner signs a listing agreement which authorizes a broker to market the property for one year
D. all of the above

>> CORRECT ANSWER IS: D

(law, definition, & nature of agency relationships) Each of these creates an agent/client relationship, where the broker is the agent and the other party is the client.


Under the usual listing agreement, a salesperson can:

A. accept or reject offers for the seller
B. place a “For Sale” sign on the property
C. deposit earnest money in her escrow account
D. advertise the property at a price lower than the listed price

>> CORRECT ANSWER IS: B

(common types of agency agreements) Under the usual listing agreement, the broker can place a “For Sale” sign on the property. All exclusive listings must have definite termination dates. The broker (agent) is accountable to the seller (principal) and also to the buyer for any monies received from either party. The salesperson cannot deposit earnest money in her own escrow account–it must be deposited in the broker’s escrow account.


A selling broker is showing a parcel of property and tells the prospective buyer: “In my expert opinion, this property is the best for you.” This statement could be interpreted as:

A. universal agency
B. special agency
C. implied agency
D. general agency

>> CORRECT ANSWER IS: C

(law, definition, & nature of agency relationships) This could create an implied agency, which might result in an undisclosed dual agency.


Under contract as a property manager, the broker is:

A. a special agent
B. a fiduciary
C. a general agent
D. both 2 and 3

>> CORRECT ANSWER IS: D

(law, definition, & nature of agency relationships) A property management contract is an agency agreement between the property owner (principal) and the broker property manager (agent). Thus, the broker is a fiduciary. In addition, the relationship is usually a general agency–the broker is authorized to perform any and all acts associated with a specific service (property management).


The zoning commission has proposed a change that could dramatically impact the subject property in a broker’s listing agreement. This information:

A. should be withheld from any prospective buyer
B. must be promptly disclosed to all parties
C. could, at the discretion of the owner, be disclosed to prospective buyers
D. must be promptly disclosed to all parties only if the change is approved

>> CORRECT ANSWER IS: B

(agency duties) Disclosure of this information is required because it is “material.” The broker must disclose this material information to the seller and any prospective buyer.


Wally Wells, a licensed salesperson, listed Parcel A under an open listing agreement and Parcel B under an exclusive right-to-sell listing agreement. Both listings expired. Three days later, the two owners exchanged properties. Wally will receive:

A. one commission for the exclusive right-to-sell agreement
B. two commissions because Wally was the procuring cause
C. no commission so long as Wally was not the procuring cause
D. a split commission

>> CORRECT ANSWER IS: C

(commission and fees) Wally gets no commission because the listings expired. If the stem of the question had indicated that Wally was involved in the transaction between the two parties during his listing period, then he may have had a cause of action to collect from one or both parties.


Which of the following statements is true about an open listing?

A. the commission is split between all brokers that have an open listing for the property
B. the seller only pays the broker who produces a ready, willing, and able buyer
C. no more than two brokers may attempt to sell the property
D. if the owner sells the property, he or she owes a commission to the broker that took the listing first

>> CORRECT ANSWER IS: B

(common types of agency agreements) In an open listing, a commission is only paid to the broker that sold the property. In addition, an owner may enter into an open listing agreement with any number of brokers. 


A seller contacted 3 brokers and asked each to suggest the listing price for his property. Broker A said $78,000. Broker B said $79,000. Broker C said $91,000. The seller listed with Broker C and the house later sold for $76,000. Broker C could be guilty of violating which of his or her fiduciary duties?

A. loyalty
B. reasonable care
C. disclosure
D. none of the above

>> CORRECT ANSWER IS: B

(agency duties) Of the fiduciary duties listed, reasonable care best describes this situation. The agent must exercise care to properly advise and consider the best interests of his client.


A seller lists her house with a broker for $189,500. The seller tells the broker that she will accept $185,000. What may the broker do when showing the property to prospective buyers?

A. say that the seller will accept a few thousand less
B. suggest that buyer should make an offer for $185,500
C. advise the buyer that the seller is flexible
D. disclose what the seller will accept, with the seller’s permission

>> CORRECT ANSWER IS: D

(agency duties) To do any of the things suggested violates the agency relationship, unless the broker has been told to disclose only what the seller will accept. If the seller agrees, the broker could disclose the seller’s willingness to accept a lower price. However, the facts in this situation do not indicate the seller’s consent to such a disclosure.


Which of the following is a broker NOT required to disclose to a prospective purchaser?

A. the property is haunted
B. the state plans to construct a new highway near the property
C. the property is subject to seasonal flooding
D. the monthly fee charged by the homeowners’ association

>> CORRECT ANSWER IS: A

(material facts) The broker must disclose all material adverse facts about the physical condition of the property that are known to the broker. That the property is haunted is an event or occurrence that does not affect the physical or environmental integrity of the property or its improvement (stigmatized property).


A property owner tells the broker that his property is structurally sound, but later the broker discovers that there are termites on the property. The broker must:

A. inform the seller and all prospective buyers
B. contact a pest control company
C. encourage the seller to remedy the problem
D. all of the above

>> CORRECT ANSWER IS: A

(material facts) All material information known by a licensee must be disclosed to all parties in a transaction. Termite damage is material information. However, licensees have no obligation to contact a pest control company, or to encourage the seller to fix problems (although they certainly could do this).


When showing and selling property, a salesperson must:

A. advise buyers of hidden property defects
B. avoid statements which may deceive the buyer
C. present all offers, even after the seller has already accepted
D. all of the above

>> CORRECT ANSWER IS: D

(material facts) Although a salesperson is an agent of the broker, who is an agent of the principal (seller), the salesperson acts as a fiduciary of the seller as a sub-agent. All offers must be presented to the seller. Both salespersons and brokers have an obligation to third parties (buyers) to inform them of material facts about the property.


In the process of taking a listing, a salesperson notices water stains on the ceiling of one of the rooms. What should the salesperson do?

A. nothing because it is not a latent defect
B. nothing because the stain is old
C. ask the owner if there is a leak
D. decline to list the property

>> CORRECT ANSWER IS: C

(need for inspection, obtaining, verifying information) The licensee must disclose all material facts about the property. The agent should inquire about the stain in order to determine if there is a problem. Remember that the licensee is required to disclose known material information to prospective buyers.


A salesperson listed a property where a murder recently occurred. If the salesperson shows the property without advising potential buyers of the murders, the salesperson would be guilty of:

A. fraud
B. misrepresentation
C. puffery
D. nothing

>> CORRECT ANSWER IS: D

(material facts) The salesperson is not required to disclose occurrences which have no effect on the physical structure, the environment, the property, or its improvements.


Broker A shows a house with a faulty roof. When he finds out about the roof, should he tell the buyer/customer?

A. yes, it is an agency responsibility
B. yes, it is a material fact
C. only if he is a dual agent
D. only if he has the seller’s permission

>> CORRECT ANSWER IS: B

(material facts) The broker must disclose all material adverse facts about the physical condition of the property that are known to the broker.


In Fair Housing discrimination cases, the burden of proof is on the complainant. The complainant must be able to prove:

A. discrimination occurred
B. the act of discrimination was not provoked by the complainant
C. only that the accused party intended to discriminate
D. actual damages resulted from the acts of the accused

>> CORRECT ANSWER IS: A

(fair housing laws) A complainant must only prove that prohibited discrimination (by the respondent) occurred.


Employees generally:

A. work under direct supervision
B. hold regular office hours
C. choose how best to accomplish a task
D. both 1 and 2

>> CORRECT ANSWER IS: D

(broker/salesperson agreements) Employees generally work under their employer’s direct supervision and hold regular office hours. Independent contractors, not employees, are free to choose how best to accomplish a task based on their individual expertise.


Fair Housing Laws do NOT provide protection on the basis of:

A. gender
B. handicap
C. homosexuality
D. single parenthood

>> CORRECT ANSWER IS: C

(fair housing laws) Sexual orientation is not protected under Federal Fair Housing Laws. It is a protected in some states and also in some counties or cities within states.


A real estate broker wishes to deposit an earnest money check in his business operating account so the purchaser can earn a higher interest rate on her funds. Can he do this?

A. Yes, if the purchaser receives a comparison of available interest rates
B. Yes, if the broker promises to insure such funds will be available at closing
C. No, these funds must be placed in a separate escrow account
D. No, the broker cannot guarantee a higher interest rate

>> CORRECT ANSWER IS: C

(trust accounts) All funds held on behalf of others must be deposited in a separate escrow account, NOT in the business operating account.


If a person has been discriminated against in a real estate transaction, they could file a complaint with the:

A. local Association of REALTORS
B. National Association of REALTORS
C. Department of Housing and Urban Development
D. Department of Health, Education and Welfare

>> CORRECT ANSWER IS: C

(fair housing laws) HUD is the best answer. An aggrieved person could file complaints elsewhere, including courts and real estate boards, but such were not offered as answer choices.


Which of the following is NOT a form of steering?

A. excluding African or Hispanic Americans from a Caucasian community
B. attempting to attract only Puerto Rican Americans into a Puerto Rican American neighborhood
C. encouraging Caucasian homeowners to sell by representing that African Americans buying homes in the neighborhood
D. efforts to keep Asian Americans out of a Caucasian neighborhood

>> CORRECT ANSWER IS: C

(fair housing laws) Attempting to induce members of one race to sell their properties by saying that members of another race are moving into the neighborhood is BLOCKBUSTING, not steering. Blockbusting and steering are violations of Fair Housing.


A broker has been approached by a minority that requests to see properties in a specific section of a city. The broker refuses and indicates that the buyer would be better off in a part of the city where there is a greater concentration of his minority group. The broker’s illegal conduct is known as:

A. blockbusting
B. redlining
C. panic selling
D. steering

>> CORRECT ANSWER IS: D

(fair housing laws) Directing buyers into or away from specific property based on their minority status is steering.


The 1988 Amendment to the Federal Fair Housing Act, Title VIII, declared it unlawful to discriminate:

A. against households with children under 18 years of age
B. on the basis of age
C. because of sexual preference
D. on the basis of the gender of the buyer or renter

>> CORRECT ANSWER IS: A

(fair housing laws) The 1988 Amendment extended protection to families. It was the 1968 law that addressed the issue of gender.


Prospective buyers discuss their housing needs with a sales agent. The agent discusses certain property, but avoids talking about houses located in a specific area that meets the buyers’ criteria. Such action could be known as:

A. redlining
B. compromise
C. steering
D. blockbusting

>> CORRECT ANSWER IS: C

(fair housing laws) Of the choices, this is most likely steering. Steering is the act of directing people into or away from specific areas of a community, often based on racial or ethnic characteristics.


Nice and Easy Loan Company has a policy of either restricting the availability or requiring lower LTV ratios for loans made in “high risk” areas of the community. This practice is known as:

A. steering
B. blockbusting
C. redlining
D. good business

>> CORRECT ANSWER IS: C

(fair housing laws) The practice described is known as redlining. As long as the lending policy is uniformly applied to all loan applicants, it does not constitute a Fair Housing violation.


A cooperative owner has exclusive use of her unit by reason of:

A. general partnership
B. proprietary lease
C. fee simple title
D. license

>> CORRECT ANSWER IS: B

(types of ownership) Cooperatives are a form of ownership composed of single units in a multi-unit development. The title to land and improvements is held by a business entity (corporation). A purchaser receives stock in the business entity and takes a proprietary lease, which provides for exclusive use of a specified unit.


A condominium could be which of the following?

A. multi-story building
B. townhouse community
C. industrial office park
D. any of the above

>> CORRECT ANSWER IS: D

(types of ownership) We commonly think of a condo as an apartment-style building. However, condominium type ownership can be created anywhere for any type of property. Some residential neighborhoods, consisting of only single-family homes, are under condominium rules and regulations. Each person owns their own home, but share an interest in the common elements such as playgrounds, swimming pools etc. Industrial property COULD be created as a condominium; the tenants would own their own buildings and share in the ownership in drive ways and parking facilities.


Three people own a piece of property as tenants-in-common. Two of the owners want to sell the property, but the third party does not. The two owners that want to sell:

A. cannot sell because all three must agree
B. may file suit for partition
C. may seek detachment
D. may sever the third party’s interest

>> CORRECT ANSWER IS: B

(types of ownership) Both joint tenants and tenants-in-common may file suit for partition, which is a request to a court to divide property owned concurrently. If indivisible, the court could order the sale of the property and divide the proceeds.


Which of the following is NOT a freehold estate?

A. a future interest in land
B. a lease which does not require rent payments
C. a life estate
D. all of the above

>> CORRECT ANSWER IS: B

(types of ownership) Life estates and future estates are freeholds. Regardless of the term, all leases are leaseholds (non-freehold estates). 


Which of the following is NOT considered to be a legal description of property?

A. metes and bounds
B. lot and block
C. rectangular survey system
D. taxpayer federal ID number

>> CORRECT ANSWER IS: D

(land characteristics and property descriptions) All choices are valid methods of legal description, except for a taxpayer’s federal identification number.


Mary has a life estate and her daughter has been named as the remainderman. Mary leases the property to Susan for 5 years. One year later Mary dies. Mary’s daughter serves notice on Susan to vacate the property. Which of the following statements is correct?

A. the lease is valid for four more years because it is Susan’s personal property
B. the lease was invalid from the beginning because a life tenant may not commit waste
C. the lease was valid only during Mary’s lifetime because it was one of the sticks in the bundle
D. the lease is invalid because it violates the statue of frauds

>> CORRECT ANSWER IS: C

(types of ownership) The life tenant has an interest in the property only during her lifetime. However, she can convey a lesser interest because property ownership always carries certain rights (remember the bundle of legal rights–possess, control, enjoy, exclude, encumber, dispose). Any interest Mary conveys will terminate upon her death because she cannot convey an interest greater than the interest she holds. While the lease is personal property, it is limited by Mary’s life estate. In addition, Mary cannot commit waste, but leasing the premises is not considered waste. Finally, because the leasehold is for longer than one year, it must be written according to the statute of frauds. However, the facts do not indicate that the lease was not in writing. Therefore, Choice C is the best choice.


Jones owns two tracts of land. One tract has lakefront property. Jones sells the other tract to Smith and gives Smith the right to cross his property in order to reach the lake. Without the right to cross Jones’ property, there would be no other way for Smith to reach the lake. Smith’s right could be:

A. an easement by necessity
B. an easement in gross
C. created by operation of law
D. all of the above

>> CORRECT ANSWER IS: B

(encumbrances) Smith could have either an appurtenant easement or an easement in gross. However, the question does not specify that the properties are adjoining or that Smith owns a tract without access (i.e. a landlocked piece of land). As such, there is no indication of any necessity. Based on the information given, an easement in gross is the best answer. Easements in gross are personal and will terminate if the servient owner sells his lot or if either party dies.


A purchaser agrees to buy a house for $47,000, obtaining a 90% loan. The buyer makes an earnest money deposit of $2,500. If the closing costs are $225, how much will the buyer need to bring to the closing?

A. $2,425
B. $4,700
C. $44,550
D. $47,000

>> CORRECT ANSWER IS: A

 

(general math concepts) First, determine the loan amount and downpayment amount:

  • Loan amount = $47,000 x 0.90 = $42,300
  • Downpayment = $47,000 – $42,300 = $4,700

Now, deduct the earnest money deposit and add in the closing costs 

  • Total Needed = $4,700 – $2,500 + $225 = $2,425

Jimmie the Gent is interested in property valued at $450,000. Jimmie will qualify for a $375,000 loan. However, Jimmie refuses to purchase if his LTV would fall under 80%. Is Jimmie likely to purchase the property?

A. yes, the LTV is within Jimmie’s range
B. no, unless Jimmie qualifies for another $2,000
C. yes, so long as Jimmie qualifies for another $10,000
D. no, unless Jimmie qualified for another $10,000

>> CORRECT ANSWER IS: A

(lending calculations) First, determine the LTV from the information supplied. 

  • LTV = Loan Amount / Property Value 
  • LTV = $375,000 / $450,000 = 0.83
  • LTV = 0.83 = 83%

Now, compare Jimmie’s minimum LTV with the LTV in question.


A salesperson sells property listed by another broker for $84,500. If the listing broker is to receive 50% of the 6% commission rate, how much will the salesperson receive if he earns 40% of his broker’s share?

A. $1,014
B. $1,521
C. $2,535
D. $6,070

>> CORRECT ANSWER IS: A

(calculations for transactions) First, determine the total commission on the sale as follows: 

  • $84,500 x 0.06 = $5,070. 
Next, determine the broker’s share of the total commission: 
  • $5070 x 0.5 = $2,535. 
Finally, determine the salesperson’s share of the broker’s commission: 
  • $2,535 x 0.4 = $1,014.

Jill owns a lot that is 1,600 square feet. The lot is 80 feet in length. What is the width of her lot?

A. 10 feet
B. 20 feet
C. 30 feet
D. 40 feet

>> CORRECT ANSWER IS: B

(general math concepts) Determine the width of Jill’s lot as follows: 

  • Area = Length x Width
  • Width = Area / Length 
  • Width =  1,600 sq. ft / 80 ft. = 20ft.

A house is sold for $47,000 with a loan of 75% for 25 years. The interest rate is 3/4% per month. A principal and interest payment of $288 is made each month. What is the total interest paid during the life of the loan?

A. $35,250
B. $39,400
C. $79,313
D. $51,150

>> CORRECT ANSWER IS: D

(calculations for transactions) First, let’s figure out some key information: 

  • Total loan = $47,000 Sales Price x 75% = $35,250 loan (principal)
  • Monthly payment (principal and interest) = $288 per month.

The problem tells us that the monthly payment is $288 per month and that the life of the loan is 25 years. Using this information, we can calculate the total paid to the bank over the life of the loan.

  • Total number of payments = 25 x 12 = 300 payments
  • Total amount paid = $288 x 300 = $86,400

From here, we can find the total interest by subtracting the loan principal from the total amount paid over the life of the loan.

  • Total interest = $86,400 – 35,250 = $51,150

The covenant in a deed where the grantor guarantees that no one has any other interest that can disturb the grantee’s possession is known as:

A. The covenant of further assurances
B. The covenant against encumbrances
C. The covenant of quiet enjoyment
D. The covenant of seisin

>> CORRECT ANSWER IS: C

(deed elements) Two similar covenants are warranty forever and quiet enjoyment. Quiet enjoyment is the promise that the grantee’s possession of the land will be defended against hostile claims and and that he shall enjoy possession of the property. Meanwhile, warranty forever is the promise the title will always be good.


All of the following persons may act as escrow agents except:

A. Brokers
B. Neutral third persons
C. Salespersons
D. Attorneys

>> CORRECT ANSWER IS: C

(escrow or closing) An escrow agent is a neutral third-party that is authorized to hold property or perform specified acts. Both brokers and attorneys can act as escrow agents. However, most states do not allow salespersons to be escrow agents, though they may accept money and documents for escrow on behalf of their employing broker.


All of the following represent a transfer of real property that takes place on the death of an owner except:

 

A. Escheat to the state
B. Transfer by devise
C. Transfer by descent
D. Transfer by eminent domain

>> CORRECT ANSWER IS: D

(conveyances after death) Escheat is when a deceased owner has no will or heirs, so the property transfers back to the state. However, in most situations, the title immediately passes to the person it is devised to in a will. Transfer by descent states that in the absence of a valid will, the living heirs will inherit the estate. Meanwhile, eminent domain is the right of government to take ownership of private property, so long as it is taken for a legitimate public use and just compensation is paid to its (still alive) owner.


Quincy sold a piece of property to Ralph, and transferred title through a quitclaim deed. Later, a court determined that Quincy did not own the property. Which of the following is true in this situation?

A. Ralph owns the property because the court action was after he bought after title transferred
B. Ralph has no interest in the property
C. Ralph has a good claim against Quincy for misrepresentation
D. Both B and C

>> CORRECT ANSWER IS: B

(types of deeds) With a quitclaim deed, the grantor does not promise that he has any interest or rights to convey. Because Quincy had no interest, he had nothing to sell, and Ralph has no interest in the property. On these facts, Ralph has no basis for a suit because through the quitclaim deed, Quincy never asserted he had an interest at all.


Escrow may be used in which of the following situations?

A. When property is purchased and secured by a deed of trust
B. In an exchange of property
C. With a contract for sale
D. All of the above

>> CORRECT ANSWER IS: D

(escrow or closing) Escrow is the holding of money, documents, etc. by a third party until the conditions of a contract have been satisfied by the principal parties. Escrow is commonly used in most real estate transactions, including the closing of mortgage loans and property exchanges.


All of the following usually perform title searches except:

A. An examiner
B. An abstractor
C. A real estate salesperson
D. The same company that issues title insurance on the property

>> CORRECT ANSWER IS: C

(title searches) A person who performs a title search is known as a title examiner or abstractor. To promote its own interests, the same company that insures title usually conducts the title search. Real estate salespersons do not generally perform title searches.


Which of the following provides compensation for defects?

A. Homeowners’ insurance
B. Private mortgage insurance (PMI)
C. Title insurance
D. Both B and C

>> CORRECT ANSWER IS: C

(title insurance) Title insurance reimburses the title holder for certain losses incurred due to defects in the title. Homeowners’ insurance reimburses the homeowner for damage to the home or property. PMI is used by lenders to hedge against the risk that a borrower will default on a mortgage. 


A property is valued using the income approach to valuation. If the capitalization rate remains the same, but the NOI increases, will the property value be affected?

A. yes, the property value will decrease
B. no, the property value will remain the same
C. yes, the property value will increase
D. there is not enough data to choose an answer

>> CORRECT ANSWER IS: C

(methods of estimating value) The income approach is based on the present worth of any future income that a property may produce. The income approach formula is: net operating income / capitalization rate = property value. If the numerator (NOI) is increased, then the overall answer will increase as well. 


An owner builds a beautiful brick colonial house in a neighborhood of contemporary, single level houses. The owner lists his newly constructed house but is unable to sell. This would be consistent with the appraisal principle of:

A. Highest and best use
B. Progression and regression
C. Conformity
D. Substitution

>> CORRECT ANSWER IS: C

(principles of value) Due to the question’s emphasis on the style of the house (rather than amenities or price) the best answer is conformity. We don’t know whether the other houses have factors which would skew desirability up or down. However, the principle of conformity states that a property attains its highest value when it conforms to surrounding properties. In this situation, the inability to sell is probably because it does not match the style of the neighborhood. 


Which method of valuation is the best choice when appraising a 25 unit apartment building? 

A. Income approach
B. Market data approach
C. Cost approach
D. Comparable approach

>> CORRECT ANSWER IS: A

(methods of estimating value) The income approach is best suited to value income producing property (such as an apartment building).


Which of the following appraisal approaches would be considered most reliable when appraising a public library?

A. Market data
B. Capitalization
C. Income
D. Cost

>> CORRECT ANSWER IS: D

(methods of estimating value) Since there would be few comparable sales for a special use property (market data) and no net income (income approach), the cost approach is the most reliable method. The cost approach is always used for any special use or historically significant properties.


The cost of utilities, the expense of professional management, and the cost to replace worn out appliances and furniture are most likely to be used in which appraisal approach?

A. market data
B. comparable
C. income
D. cost

>> CORRECT ANSWER IS: C

(methods of estimating value) The question describes income producing property, and most of these expenses would be considered operating expenses. Expenses are used to arrive at the NET income of property. The net income divided by the capitalization rate gives the estimated value of the property.


Which of the following is an example of functional obsolescence?

A. A house with a leaking water pipe
B. Shutters that needed painting
C. A house that is not near an elementary school
D. A house without indoor plumbing

>> CORRECT ANSWER IS: D

(principles of value) A house without indoor plumbing would suffer from functional obsolescence. Leaking water pipes or shutters in need of paint would be physical deterioration. Whether a house is near a particular elementary school could be desirable. If negative, the elementary school would be economic obsolescence.


Which pair is the most appropriate means of estimating value? 

A. Bob’s house – Cost approach
B. The Raymond Civic Center – Income approach
C. Rootie Apartments – Market data approach
D. Valley View Mall – Income approach

>> CORRECT ANSWER IS: D

(methods of estimating value) Bob’s house is best suited to the market data approach. The Raymond Civic Center is best suited to the cost approach. Rootie Apartments is best suited to the income approach. The Valley View Mall is best suited to the income approach. 


Bill the Buyer makes an offer to purchase and gives Broker Joan a $1,000 earnest money deposit. The next day, and before Joan has a chance to present the offer, Bill finds another property that he wishes to purchase instead. What should Bill do?


A. ask Joan to return his money
B. wait for acceptance, rejection, or a counteroffer because he is obligated by his offer
C. attempt to withdraw his offer
D. both A and C

>> CORRECT ANSWER IS: D

(general knowledge of contract law) A buyer can withdraw his offer anytime before the offer is accepted. If Bill withdraws his offer before acceptance, he is entitled to have his earnest money deposit returned. Therefore, if Bill wishes to purchase another property, Bill should attempt to withdraw his offer and request his earnest money to be returned.


Liquidated damages from breach of a sales contract are usually available to the:

A. buyer, in the event of the seller’s default
B. seller, in the event of the buyer’s default
C. broker, in the event of the buyer’s default
D. either the buyer or seller where the other defaults

>> CORRECT ANSWER IS: B

(general knowledge of contract law) Liquidated damages are pre-negotiated damages that are due if a party breaches a contract. In real estate sales contracts, it is common for the buyer to offer an earnest money deposit along with his offer on the property. If accepted, the buyer’s earnest money is deposited into an escrow account to serve as either liquidated damages if the buyer defaults, or as a down payment on the property if the sale closes. Generally, if the seller defaults and the buyer choses to rescind the contract, the buyer is entitled to have his earnest money returned (not as liquidated damages).


A Court order requiring parties to perform as agreed is known as a suit for:

A. specific performance
B. quiet title
C. quiet enjoyment
D. punitive damages

>> CORRECT ANSWER IS: A

(general knowledge of contract law) Specific performance is a court order directing a party to perform as he agreed in a valid and enforceable contract. Specific performance is a potential remedy in disputes over real estate sales contracts because all real estate is unique, and other damages may not sufficiently remedy a party’s breach.


Fred sold his home, but will be out of town on the day of closing. He gives his friend Paul a limited power of attorney. The limited power of attorney authorizes Paul to consummate the sale on Fred’s behalf. Paul is best described as:

A. a friend, helping a friend
B. a listing broker
C. an attorney-at-law
D. the attorney-in-fact

>> CORRECT ANSWER IS: D

(general knowledge of contract law) Paul COULD be any of the people described in the answer choices. However, Paul is functioning as an attorney-in-fact in the circumstances outlined. Therefore, the best answer accurately describes what Paul is doing rather than who Paul is.


The clause in a lease that allows rent to increase is a/an:

A. acceleration clause
B. percentage clause
C. escalator clause
D. contingency clause

>> CORRECT ANSWER IS: C

(leases as contracts) Of the choices, only an escalator clause specifies that rent will increase at periodic times by predetermined amounts.


An option holder is obligated to do which of the following?

A. withdraw the option prior to acceptance
B. convey further assurance to the optionor
C. exercise the option contract within a set period of time
D. nothing

>> CORRECT ANSWER IS: D

(offers/purchase agreements) The option holder (one with the right to exercise the option) is not obligated to do anything–he has the option to buy, but not the obligation to buy. It is true that the option holder’s option is only available for the stated period of time. However, it is not true that the option holder must exercise the option at any time at all. It is also not true that the option holder must provide any further assurances or withdraw the option (the option expires automatically after the specified time).


Which of the following contracts will provide instruction for the distribution and proration of escrow and impound funds?

A. a deed
B. a mortgage
C. the sales contract
D. the listing

>> CORRECT ANSWER IS: C

(offers/purchase agreements) The settlement agent will examine various documents to ascertain how to distribute funds. Of the choices, the sales contract will come closest to containing all pertinent information about disbursements.


A graduated lease is defined as one:

A. that includes an option to purchase
B. in which all expenses are paid by the lessor
C. in which rent is fixed in intervals
D. whereby rent increases with each new tenant

>> CORRECT ANSWER IS: C

(leases as contracts) A graduated lease can be compared to an adjustable rate mortgage. The rent will increase or decrease based on some future factor. However, after it is adjusted, it is fixed until the next interval.


Nate rents a vacant lot from Zach for 30 years. Nate plans to erect a building on the land at his own expense. This type of lease is most likely a:

A. net lease
B. gross lease
C. ground lease
D. sale and lease back

>> CORRECT ANSWER IS: C

(leases as contracts) This is a textbook example of a ground lease. Nate will pay rent for the use of the land for the term of the lease (30 years). Nate may use any improvements he makes to the land during his leasehold, but Zack will own any such improvements at the end of Nate’s leasehold.


When leasing property under a net lease, the tenant could deduct all of the following as a business expense, EXCEPT:

A. maintenance
B. fire insurance
C. depreciation
D. utilities

>> CORRECT ANSWER IS: C

(leases as contracts) Under a net lease, the lessee (tenant) pays for maintenance (upkeep) of the property, fire insurance, and utilities. Depreciation is an income tax deduction, available only to the owner and not the tenant.


A mortgage where the total principal is due at maturity is a:

A. package loan
B. term loan
C. fully amortized loan
D. all of the above

>> CORRECT ANSWER IS: B

(mortgages/deeds of trust) A term (straight) loan is one on which only interest is paid during the loan term and the entire principal loan amount is paid on the maturity date.


A budget mortgage payment (PITI) would NOT normally include:

A. A payment toward the principal of the loan
B. A payment toward the interest of the loan
C. 1/12 of the annual real property taxes
D. 1/12 of the annual life insurance premium

>> CORRECT ANSWER IS: D

(general concepts) PITI means principal, interest, taxes, and insurance and is known as a budget mortgage because the owner pays exactly the same amount each month. The insurance portion of PITI is hazard insurance, NOT life insurance.


A seller sells her home to a buyer who assumes her existing loan. If the buyer defaults, who is responsible for the balance of the debt?

A. seller only
B. buyer only
C. seller and buyer jointly
D. seller and buyer jointly and severally

>> CORRECT ANSWER IS: D

(mortgages/deeds of trust) When the buyer “assumes” the existing loan of the seller, the seller remains a co-maker on the note with the buyer. Thus, both the seller and the buyer are jointly (both) and severally (individually) liable to the lender for the debt.


Which of the following statements about the Federal National Mortgage Association is true?

A. it raises funds to purchase loans by selling government guaranteed bonds
B. it regulates interest rates
C. it borrows money from itself
D. none of the above

>> CORRECT ANSWER IS: A

(sources of lending money) The FNMA (Fannie Mae) raises funds through the sale of government guaranteed bonds (backed by its pool of mortgages) to further secondary mortgage market operations.


Under the Truth-In-Lending Act, all of the following must be in the disclosure statement EXCEPT:

A. total finance charges
B. pay-off penalties
C. attorney fees
D. annual percentage rate

>> CORRECT ANSWER IS: C

(financing/credit laws) Under the Truth In-Lending, the lender is only required to disclose to the borrower the charges related to obtaining credit, such as total finance charges, pay off penalties (pre-Payment penalties), and the annual percentage rate (APR). Attorney fees need not be included in this disclosure.


Surplus funds realized at a foreclosure sale generally belong to the:

A. purchaser at the sheriff’s sale
B. sheriff
C. mortgagee
D. foreclosed owner

>> CORRECT ANSWER IS: D

(mortgages/deeds of trust) If the property is sold at foreclosure and the sale brings in more than the debt owed, the excess belongs to the foreclosed owner.


A mortgage could include all of the following clauses, EXCEPT:

A. defeasance
B. alienation
C. subrogation
D. acceleration

>> CORRECT ANSWER IS: C

(mortgages/deeds of trust) A mortgage will generally contain all of the clauses mentioned, except for the subrogation clause. Subrogation clauses are commonly associated with an insurance policy. If your insurance company pays you, a subordinate clause provides the right to seek reimbursement from the other party. You subrogate (give) your rights to the insurance company.


When a promissory note (given for payment of a parcel of land) has a lien priority which is less than a succeeding claim, it is called:

A. estoppel
B. enumeration
C. subordination
D. none of the above

>> CORRECT ANSWER IS: C

(mortgages/deeds of trust) When a security instrument (mortgage or trust deed) voluntarily takes a priority position that is LOWER than a succeeding claim, it is called subordination.


The state decides to widen a highway. It will be necessary to use six feet of private property on each side. The state’s power to take this property is derived from:

A. the police power
B. zoning power
C. condemnation proceedings
D. none of the above

>> CORRECT ANSWER IS: D

(government rights in land) When the state takes property for the good of the public, it does so through the POWER of Eminent Domain. This is a separate from the police power. Like all government powers, eminent domain is derived from the Constitution. The PROCESS through which the state takes property from a person who refuses to give it up is a condemnation proceeding.


Property management agreements usually represent:

A. general agency
B. special agency
C. dual agency
D. universal agency

>> CORRECT ANSWER IS: A

(property management and landlord/tenant) Property management agreements usually represent general agency agreements.


A property owner obtains a building permit to add a bedroom to her house. Her neighbors notice that the addition will result in a violation of the setback restrictions in the owner’s deed. Which of the following is the best course of action for any affected neighbors?

A. Sue for damages due to the violation
B. Nothing, since the county sanctioned the addition by issuing the building permit
C. Seek an injunction forcing the owner to tear it down
D. Ask the county to revoke the building permit

>> CORRECT ANSWER IS: C

(private controls) The setback restrictions described are deed restrictions, not zoning restrictions. The neighbors would sue for an injunction against the owner, either preventing the addition from being built or requiring that it be removed. Building permits do not override valid deed restrictions.


An owner has been using a parcel of land for heavy industry since 1973. Subsequently, the property is zoned for commercial use. The owner’s continued industrial use of the property is a(n):

A. violation of the existing zoning
B. deviation from the master plan
C. example of a zoning variance
D. an illegal non-conforming use

>> CORRECT ANSWER IS: A

(public controls based in police power) This is an example of a non-conforming use. At one time, the use of the property conformed to the zoning code. However, the zoning has been changed, so the continued use for industrial purposes is in violation of current zoning. However, because the use existed before the zoning changed, it may continue. Had the use arisen after the zoning change, it would be classified as an illegal non-conforming use. Master plans contain general standards of present and future development. We do not know if this change deviated from the master plan. Therefore, we do not know whether the non-conforming use deviates from the master plan.


An area in which zoning regulates the specific balance of shopping, business, and recreational facilities is an example of:

A. urban renewal
B. mixed zoning
C. PUD
D. commercial condition zoning

>> CORRECT ANSWER IS: C

(subdivisions) Planned Unit Developments (PUD) are mixed-use developments that use zoning ordinances to achieve a desired balance.


Paul Property Owner makes significant improvements to a lot that he has held for seven years. Which of the following is most likely true regarding Paul’s improvements?

A. Paul’s land will increase in value
B. Paul’s land will decrease in value
C. Paul is developing a subdivision
D. either 1 or 2

>> CORRECT ANSWER IS: D

(commercial property/income property) Improvements may have a positive or negative affect on the economic value of the land and surrounding areas, depending on the type of development or improvement.


Assemblage most often occurs where:

A. demand is high
B. demand is low
C. the whole is more valuable than the parts
D. both 1 and 3

>> CORRECT ANSWER IS: C

(commercial property/income property) Regardless of whether demand is high or low, assemblage is usually practiced when the combined property will be more valuable than the sum of the individual parcels.


Merging adjacent properties is know as:

A. annexation
B. abutment
C. marshaling
D. assemblage

>> CORRECT ANSWER IS: D

(commercial property/income property)  It is known as assemblage when two or more adjoining properties are combined into a larger tract of land. Assemblage may increase the value of both parcels. Think of this as assembling more than one property together.


The developer of a subdivision requires that if a single-family house has a garage, the garage must be attached. This is most likely an example of:

A. local building codes
B. a zoning ordinance
C. a covenant
D. all of the above

>> CORRECT ANSWER IS: C

(private controls) A negative (restrictive) covenant is a private restriction on land that may appear in a deed. This type of restriction would be imposed by a developer, not a local government through use of zoning powers.


A clause in a deed which states that title would revert to the grantor, if the grantee operated a dance hall on the property, would be a:

A. invalid deed restriction
B. valid public control
C. valid deed restriction
D. enforceable only through zoning laws

>> CORRECT ANSWER IS: C

(private controls) This is a valid condition (although, arguably illogical) for the deed contained in the granting clause. The grantee would receive a qualified fee (fee simple defeasible). The grantor retains a “possibility of reverter.”


When does a broker earn commission?

A. when the listing is taken
B. when the purchaser signs the title insurance policy
C. when closing is complete and title passes
D. when the offer to purchase has been signed and accepted by the seller

>> CORRECT ANSWER IS: D

(commissions and fees) The broker EARNS a commission when the broker brings a ready, willing, and able buyer to purchase on the seller’s terms. The broker is PAID when the deal closes and title is transferred.


Seller Pruitt signed an exclusive right-to-sell listing with Broker Cook. The listing includes a 7% commission and a clause that states the agreement is in effect until the house is sold. Is this legal?

A. no, because the commission was over 6%
B. no, because the duration is potentially indefinite
C. yes, if it is a multiple listing
D. yes, assuming all other elements are satisfied

>> CORRECT ANSWER IS: B

(common types of agency agreements) Exclusive listings must have a definite termination date. If the house does not sell, the agreement could exist forever.


A selling broker is showing a parcel of property and tells the prospective buyer: “In my expert opinion, this property is the best for you.” This statement could be interpreted as:

A. universal agency
B. special agency
C. implied agency
D. general agency

>> CORRECT ANSWER IS: C

(law, definition, & nature of agency relationships) This could create an implied agency, which might result in an undisclosed dual agency.


When does an open listing terminate?

A. in a reasonable time
B. if the property is destroyed by fire
C. when the property is sold
D. all of the above

>> CORRECT ANSWER IS: D

(common types of agency agreements) An open listing may terminate in a reasonable time if there is no definite termination date (local custom). Any agency agreement is terminated by destruction or disposition of the subject of employment.

 


A salesperson lists a home, but the house burns down prior to receiving an offer. Which of the following is true about the situation?

A. the listing remains in effect
B. the broker is entitled to a commission based on the listed price
C. all advertising must be revised to accurately describe the property
D. the listing automatically terminates

>> CORRECT ANSWER IS: D

(common types of agency agreements) By law, the listing agreement would terminate because the subject in the agency contract no longer exists.


After he has entered into a valid contract with a buyer, the seller that his broker was representing the buyer. The seller has the right to:

A. cancel the contract, without obligation to either buyer or broker
B. cancel the contract, but only with written permission from the buyer
C. cancel the contract, but with liability to the broker for any expenses
D. the contract is valid and must be executed as agreed

>> CORRECT ANSWER IS: A

(common types of agency agreements) Representing both buyer and seller, without prior knowledge and approval is a breach of the listing agreement. The seller may cancel the contract without obligation or could accept the contract, but refuse to pay the broker because the broker’s actions would amount to misrepresentation.


The zoning commission has proposed a change that could dramatically impact the subject property in a broker’s listing agreement. This information:

A. should be withheld from any prospective buyer
B. must be promptly disclosed to all parties
C. could, at the discretion of the owner, be disclosed to prospective buyers
D. must be promptly disclosed to all parties only if the change is approved

>> CORRECT ANSWER IS: B

(agency duties) Disclosure of this information is required because it is “material.” The broker must disclose this material information to the seller and any prospective buyer.


A listing will automatically terminate:

A. if the listing broker goes bankrupt
B. on the date specified in the listing agreement
C. if the seller dies prior to receiving an offer from a ready, willing, and able buyer
D. all of the above

>> CORRECT ANSWER IS: D

(law, definition, & nature of agency relationships) A listing terminates if either the agent or the principal dies or goes bankrupt. Listings also terminate when they expire.


A licensed real estate salesperson may legally accept an extra commission on a difficult sale from:

A. an appreciative seller
B. a thankful buyer
C. his or her broker
D. the mortgage lender

>> CORRECT ANSWER IS: C

(commission and fees) A licensed salesperson may accept compensation for an act of real estate brokerage from his/her employing broker and NO ONE ELSE.


A listing may be revoked by:

A. the seller
B. the selling broker
C. the salesperson that obtained the listing
D. the death of the salesperson

>> CORRECT ANSWER IS: A

(law, definition, and nature of agency relationships) A listing may be revoked by the client (seller), agent (broker), or by mutual consent of both. The salesperson cannot terminate the listing. The LISTING broker (not the selling broker) may revoke the listing. Watch the wording of these questions! 


Broker A shows a house with a faulty roof. When he finds out about the roof, should he tell the buyer/customer?

A. yes, it is an agency responsibility
B. yes, it is a material fact
C. only if he is a dual agent
D. only if he has the seller’s permission

>> CORRECT ANSWER IS: B

(material facts) The broker must disclose all material adverse facts about the physical condition of the property that are known to the broker.


In the process of taking a listing, a licensee notices a potential water stain in the basement. What should the licensee do?

A. ignore it, as it is not a latent defect
B. ignore it, if the damage appears to be old
C. ask the owner if there is a leak
D. nothing

>> CORRECT ANSWER IS: C

(need for inspection, obtaining, verifying information) It is the responsibility of the licensee to determine all material facts about the property. The agent should enquire about the stain in order to determine if there is a problem. Remember that the licensee is required to disclose known material information to prospective buyers.


Which of the following is a broker NOT required to disclose to a prospective purchaser?

A. the property is haunted
B. the state plans to construct a new highway near the property
C. the property is subject to seasonal flooding
D. the monthly fee charged by the homeowners’ association

>> CORRECT ANSWER IS: A

(material facts) The broker must disclose all material adverse facts about the physical condition of the property that are known to the broker. That the property is haunted is an event or occurrence that does not affect the physical or environmental integrity of the property or its improvement (stigmatized property).


Broker Marco was showing a tract of land with irregular boundaries. When asked about a boundary, Marco indicated that it ran from the edge of the stone wall to the creek. However, he knew that this was not exactly correct. After the buyer contracted for the property, she was shown a survey which reflected the true boundary. Was Marco guilty of misrepresentation?

A. no, verbal statements are not binding
B. no, the buyer was responsible for having the property surveyed
C. yes, the broker was responsible for verifying the official records
D. yes, because he knew his statement was not completely accurate

>> CORRECT ANSWER IS: D

(need for inspection, obtaining, verifying information) Broker Macro knowingly misrepresented the facts about the boundaries to the buyer. Therefore, he is guilty of misrepresentation or possibly fraud.

 


Which of the following is NOT a latent defect?

A. worn carpeting
B. seasonal flooding in the basement
C. a foundation crack covered with paneling
D. a faulty, but working, heating system

>> CORRECT ANSWER IS: A

(material facts) A latent defect is one that is not readily noticeable. Worn carpets are obvious, while the other answer choices would probably not be known by mere observation.


In the process of taking a listing, a salesperson notices water stains on the ceiling of one of the rooms. What should the salesperson do?

A. nothing because it is not a latent defect
B. nothing because the stain is old
C. ask the owner if there is a leak
D. decline to list the property

>> CORRECT ANSWER IS: C

(need for inspection, obtaining, verifying information) The licensee must disclose all material facts about the property. The agent should inquire about the stain in order to determine if there is a problem. Remember that the licensee is required to disclose known material information to prospective buyers.


Zorba leases a restaurant. He installs ovens, booths, and counters. Which of the following is true?

A. the ovens, booths, and counters cannot be removed by Zorba
B. the ovens, booths, and counters can be removed by Zorba at any time
C. the ovens, booths, and counters can be removed by Zorba at any time before Zorba’s lease expires
D. Zorba is not responsible for any damage caused by removing the ovens, booths, and counters

>> CORRECT ANSWER IS: C

(classes of property) Items used in a trade are trade fixtures and are the personal property of the tenant, regardless of whether they are attached to land. They may be removed before the lease expires, but any damage to the real property caused by the removal must be repaired. If not removed before the expiration of the lease, they become the property of the owner.


The original owner of a condominium unit holds which of the following interests?

A. fee simple absolute in the unit
B. joint tenancy in the common areas
C. joint tenancy with other owners in common walls
D. all of the above

>> CORRECT ANSWER IS: A

(types of ownership) All original condominium owners have fee simple absolute title (ownership) in their individual living unit. Consistent with the condominium form of ownership, all original and subsequent condominium owners are tenants-in-common with all other unit owners in the common areas of the project.


Which of the following is an example of a tenancy at sufferance?

A. a farmer who refuses to cede possession of property upon lease expiration in order to harvest his crops
B. a person who leases a store and renews her lease on a month-to-month basis
C. a tenant who installed trade fixtures, but did not remove them when the lease expired
D. a tenant that uses the premises in violation of her lease

>> CORRECT ANSWER IS: A

(types of ownership) A tenant at sufferance is one who remains in possession of leased property after his or her lease expires. While the farmer retains title to his crops (because they are fructus industriales), he has no rights in the leased premises. A tenant that violates the conditions of her lease before it expires has lawful possession unless or until she is evicted.


A prospective buyer wants the seller to include an ornate flagpole attached to the front porch of the house. What should the agent do to best ensure the flagpole conveys?

A. nothing, because the pole is attached and will automatically convey
B. call the seller and advise them the buyer wants the pole
C. include the flag pole in the offer to purchase
D. photograph the flag pole as evidence of its attachment

>> CORRECT ANSWER IS: C

(classes of property) The best way to avoid a fixture dispute is always by agreement. By placing the flag pole in the offer, the buyer is attempting to reach an agreement with the seller. While advising the seller that the buyer wants the pole is a step in the right direction, actually including the pole in the offer is the best answer. While it is true that the pole could automatically convey, and that a photograph could be useful evidence in the event of a dispute, placing the issue in the offer removes any ambiguity or concern.


Which of the following is not personal property?

A. a lease
B. a mortgage that secures personal property
C. partnership interests
D. an easement

>> CORRECT ANSWER IS: D

(classes of property) Leases, mortgages on personal property, and partnership interests are all personal property. Of the listed choices, only an easement is NOT personal property.


An adequate metes and bounds description will have all of the following, EXCEPT:

A. a definite point of beginning
B. four sides
C. closure
D. linear measurements and compass directions

>> CORRECT ANSWER IS: B

(land characteristics & property descriptions) Property does not need to be shaped like a square in a metes and bounds description. It can be any shape, with more or less than four sides. 


Lionel rents an apartment under a three-year lease. After the first six months, the landlord sells the building. Lionel:

A. must renegotiate the lease with the new owner or vacate the premises
B. need not do anything if the owner fails to renegotiate the lease within 60 days
C. need not do anything, but the new owner may terminate the lease at any time
D. need not do anything

>> CORRECT ANSWER IS: D

(types of ownership) The new owner owns the property subject to the existing lease. As such, he or she must honor the rental period and may not significantly alter the terms. Because the lease is Lionel’s personal property, he need not do anything.


Which of the following is NOT true about metes and bounds?

A. the metes and bounds survey ends at the point of beginning
B. the distances shown in the deed will prevail over the actual distances measured
C. the length of metes in the survey can be measured to one hundredth of a foot
D. the monument at the point of beginning should be as permanent as possible

>> CORRECT ANSWER IS: B

(land characteristics and property descriptions) If there is a difference between the distances shown in the deed and the actual distances measured by survey, the data in the survey will prevail over the data contained in the deed.


Dave had a bad year. In February, he defaulted on his mortgage. In March, a carpenter built a deck on Dave’s house. In April, that carpenter secured a mechanic’s lien for work and materials since Dave wasn’t able to pay his bill. In June, a judge signed a judgment lien against Dave and all of his real and personal property. Finally, Dave realized that he forgot to pay his property taxes, which should have been due in August. Which of the following has priority following a court-ordered foreclosure of Dave’s home?

A. the lien of his mortgage
B. the real estate tax lien
C. the judgment lien
D. the mechanics’ lien

>> CORRECT ANSWER IS: B

(encumbrances) Real estate tax liens have priority over all other liens, including mortgages.


Real property can be changed into personal property:

A. by the right of appropriation
B. by severance
C. by the law of capture
D. never, land is indestructible

>> CORRECT ANSWER IS: B

(land characteristics and property descriptions) Severance describes the analysis one undergoes to determine whether a fixture may be removed from real property. Appropriation refers to water law doctrine. Capture is a red herring. While land is generally indestructible, it can change from real to personal property and vice versa.


One house in a large neighborhood stands out because, compared to the others, it is not well maintained. Which concept best explains this single home’s impact on the surrounding community?

A. the poorly maintained home’s value may rise due to immobility
B. the value of all other homes in the neighborhood will decrease due to immobility
C. the poorly maintained home’s value would increase if it were assembled with another lot
D. the value of other homes in the neighborhood will decrease due to situs

>> CORRECT ANSWER IS: A

(land characteristics and property descriptions) A poorly maintained home in a large and well maintained community may actually increase in value due to the concept of immobility–its value is directly affected by its external surroundings. One home is not likely to decrease property values for all other homes in a large community.


The original owner of a condominium unit holds which of the following interests?

A. fee simple absolute in the unit
B. joint tenancy in the common areas
C. joint tenancy with other owners in common walls
D. all of the above

>> CORRECT ANSWER IS: A

(types of ownership) All original condominium owners have fee simple absolute title (ownership) in their individual living unit. Consistent with the condominium form of ownership, all original and subsequent condominium owners are tenants-in-common with all other unit owners in the common areas of the project.


The land description that uses a recorded subdivision plat is the:

A. geodetic survey method
B. rectangular survey system
C. lot and block system
D. metes and bounds survey method

>> CORRECT ANSWER IS: C

(land characteristics and property descriptions) Recorded subdivision plats are used with the lot, block, and subdivision method of land description.


Property taxes on cooperative units are assessed in the form of:

A. individual tax bills for each unit
B. a single tax bill, prorated among individual units
C. annual tax bills based on the type of unit
D. biannual tax bills based on the type of unit

>> CORRECT ANSWER IS: B

(types of ownership) The tax bill is issued to the corporation or owner entity, and is then prorated among the proprietary tenants.


Zorba owns property and gladly allows his friend, Young, to use it. To best protect Zorba’s interest, he should give Young:

A. an easement in gross
B. a right of way
C. a appurtenant easement
D. a license

>> CORRECT ANSWER IS: D

(encumbrances) A license is permission to use the land (may be an oral agreement), and is revocable at will. An easement in gross is similar, but must be written, creates an interest in land, and cannot be revoked outside of the agreed upon termination. A license provides greater flexibility for Zorba than an easement in gross.


A prospective buyer wants the seller to include an ornate flagpole attached to the front porch of the house. What should the agent do to best ensure the flagpole conveys?

A. nothing, because the pole is attached and will automatically convey
B. call the seller and advise them the buyer wants the pole
C. include the flag pole in the offer to purchase
D. photograph the flag pole as evidence of its attachment

>> CORRECT ANSWER IS: C

(classes of property) The best way to avoid a fixture dispute is always by agreement. By placing the flag pole in the offer, the buyer is attempting to reach an agreement with the seller. While advising the seller that the buyer wants the pole is a step in the right direction, actually including the pole in the offer is the best answer. While it is true that the pole could automatically convey, and that a photograph could be useful evidence in the event of a dispute, placing the issue in the offer removes any ambiguity or concern.


Which of the following is most likely to transfer with real property:

A. fructus naturales
B. portable kitchen appliances
C. fructus industriales
D. trade fixtures

>> CORRECT ANSWER IS: A

(classes of property) Of the items listed, fructus naturales is most likely to transfer with real property. Fructus naturales refers to landscaping, such as trees and bushes. Trade fixtures and fructus industriales generally do not transfer with real property. Fructus industriales, or emblements, refers to growing crops. Trade fixtures are installed by a tenant in connection with his trade or business and do not convey if they are timely removed.


Real estate taxes for each fiscal year are due on June 30th. If the annual property taxes are as $2,580 and a property sells and closes on April 15, what is the settlement sheet entry for the proration of taxes?

A. Credit to buyer $2042.50
B. Debit to buyer $2042.50
C. Debit to seller $537.50
D. Credit to seller $537.50

>> CORRECT ANSWER IS: A

(calculations for transactions) The buyer will get a credit since taxes for the year have NOT been paid. When the bill comes, the buyer will be in possession of the property and will have to pay the full amount, though he has only lived there for 2-1/2 months (1/2 Apr, May, and June). As such, the seller is DEBITED (charged) and the buyer is CREDITED for the previous months:

  • Monthly Taxes = $2,580 / 12 = $215
  • Buyer’s total taxes =  $215  x 2.5 = $537.50
  • Reimbursement = $2,580 – $537.5 = $2,042.50 credit to buyer

The seller would have a debit for the same amount, but that is NOT one of your choices.


Under the terms of an FHA loan, a lender agrees to loan 96.5% for the sale of a $46,000 home. The lender is quoting four loan discount points. How much would the seller pay in discount points if he agreed to pay all four points?

A. $1,797
B. $1,776
C. $2,329
D. $2,300

>> CORRECT ANSWER IS: B

(lending calculations) Remember that points are computed on the loan amount, not the sales price. Discount points are worth 1% of the loan amount. 

  • Loan amount = $46,000 x 0.965 = $44,390
  • Discount point = $44,390 x 0.01 = $443.90 
  • Total Points = $443.90 x 4 = $1,775.60

Rounded to the nearest dollar, the seller would pay $1,776 if he agreed to all four discount points. 


A developer has 25 acres, which he plans to sub-divide into 1/2 acre building lots. Of the total tract, he must dedicate 5% for streets, and 15% for recreation and open space. Each lot will sell for $19,560. What is the developer’s potential income?

A. $978,000
B. $789,375
C. $782,400
D. $391,200

>> CORRECT ANSWER IS: C

(calculations for valuation) First, understand that the total number of acres to develop is 25. Next, deduct the amount of land that will not be sold as a building lot (streets and recreation), or 5 acres. 

  • Other property = 5% + 15% = 20%
  • Sold property = 100% – 20% = 80%
  • Sold property = 25 acres x 0.80 = 20 acres
Next, calculate the number of 1/2 acre lots that can fit on the development and multiple the number of lots by the selling price: 
  • Number of Lots = 20 acres x 2 = 40 lots
  • Profit = $19,560 x 40 = $782,400.  
 If you forgot that these were 1/2 acre lots and multiplied by 20, you may have selected $391,200.

Tom built a 28′ by 140′ single story home. The average cost of construction was $11.25 per square foot. What is the total cost of the house?

A. $441,000
B. $63,250
C. $44,100
D. $4,410

>> CORRECT ANSWER IS: C

(general math concepts) First, determine the square footage as follows: 

  • 28′ x 140′ = 3920 square feet. 

Next, multiply the square footage by the average cost per square foot as follows: 

  • $11.25 x 3,920 = $44,100.

A property was purchased for $125,000 with a down payment of $25,000. The current loan balance is $94,000 and the appraised value is $132,400. What is the owner’s equity?

A. $31,400
B. $37,400
C. $38,400
D. none of the above

>> CORRECT ANSWER IS: C

(calculations for transactions) By definition, equity is the difference between the stated value of property and the debt directly associated with the property. In this case the value is $132,400 and the debt is $94,000. 

  • Equity = $132,400 – $94,000 = $38,400.

To transfer title to property by deed, which of the following is required?

A. The deed must be recorded in the public record
B. The deed must be signed by the buyer
C. The deed must be signed by the grantor
D. Both B and C

>> CORRECT ANSWER IS: C

(deed elements) Title passes after the deed has been delivered and accepted. The grantor (seller) must sign the deed, but the grantee (buyer) does not need to sign the deed so long as the grantee is identified.


Which of the following statements is correct if a deed transferring legal title from one party to another is NOT recorded in the public record?

A. The deed is valid
B. The grantor gives up all rights to the property conveyed
C. The transfer is not valid
D. Both A and B

>> CORRECT ANSWER IS: D

(deed elements) A deed is valid even if it is not recorded. However, because recording a deed offers protection against third party claims to ownership, it is the wise and prudent thing done by most people. In transferring title, the grantor gives up his or her rights.


What is a written instrument or thing of value that held by a disinterested third party, but must be handed over upon satisfaction of specified conditions?

A. A bond
B. A deed of trust
C. An escrow closing
D. An assignment

>> CORRECT ANSWER IS: C

(escrow or closing) The question describes an escrow closing. In an escrow closing, documents (deeds, mortgages, etc) and funds are held by a third party until closing is complete. Upon closing (and as specified in the purchase agreement), the escrow agent turns over the deed and funds to the proper parties.


When a property sells, who pays to record a satisfaction or release of the existing deed of trust?

A. Buyer
B. Seller
C. Lender
D. Broker

>> CORRECT ANSWER IS: B

(tax aspects) The buyer pays to have his new deed recorded. The seller pays to have his existing deed of trust released.


Dan has a loan secured by his home through Bank Trust Company (BTC). Dan has failed to make several mortgage payments to BTC and as a result, BTC has begun to send collection notices. If Dan files for bankruptcy, BTC must:

A. Send Dan a notice of acceleration before it can continue its collection efforts
B. Send Dan a notice of foreclosure before it can proceed with foreclosure
C. Send Dan a notice of forfeiture
D. Stop all collection activity during the pendency of Dan’s bankruptcy petition

>> CORRECT ANSWER IS: D

(special processes, bankruptcy) When someone files a petition for bankruptcy protection, a creditor must cease all collection activity until the petition is discharged. Therefore, pursuing any kind of collection action, such as acceleration or foreclosure, would be improper. A notice of forfeiture would be a form of collection activity, but would not be sent by BTC since forfeiture is used for the breach of a land installment contract, not the breach of a mortgage contract.


Bill sells real property to Betty through an escrow closing. Bill relinquishes control of the deed, but Betty does not receive it. What most likely happened to the deed?

A. It was stolen
B. Bill placed it in a safe deposit box
C. Bill gave it to his wife to hold
D. Bill delivered it to an escrow agent

>> CORRECT ANSWER IS: D

(escrow or closing) Note that the question states this is an escrow closing. In an escrow closing, the deed is placed in escrow, where the grantor relinquishes his control of the deed. The escrow agent delivers the deed to the grantee upon the completion of agreed upon conditions (usually specified in the sales contract).


Chris defaults on his house loan and his lender wants to auction the property (which secures the loan) in order to satisfy the debt. This is known as:

A. Short Sale
B. Forfeiture
C. Foreclosure
D. None of the above

>> CORRECT ANSWER IS: C

(foreclosure, short sales) A short sale happens when the defaulting borrower sells the property to a new buyer for less than the full amount owed to the lender. Foreclosure is the loss of property to pay off a debt. Forfeiture is losing the property because of disobeying a condition in the deed.


Which of the following statements is true about the cost approach to estimating value?

A. Replacement costs denote property that is replaced by another with similar utility
B. Reproduction costs denote property that is replaced by another identical property
C. Using the cost approach tends to set the upper limits of value
D. All of the above

>> CORRECT ANSWER IS: D

(methods of estimating value) Under the cost approach, replacement cost is the cost to build a structure with similar utility and amenities. Reproduction cost is the cost of building an exact replica of the subject property. Any time that one cost approach is used (either replacement or reproduction) the value will be in the upper end of the value scale.


Which of the following factors would have the LEAST effect on an appraisal?

A. The real estate market
B. Income to be derived from the property
C. Location of the property
D. Livelihood of the prospective buyer

>> CORRECT ANSWER IS: D

(elements of value) The livelihood (the means by which a person makes a living) would have the least effect on the appraisal. What the buyer does for a living has absolutely no bearing on value. However, the real estate market, location, and income to be derived from the property has considerable effect on the appraisal.


Martha is preparing a CMA for a house that has a in-ground pool in the backyard. She located a comparable house down the street, which recently sold for $430,000. Unfortunately, it does not have an in-ground pool. If the value of the pool is $22,000, which of the following adjustment would she need to make?

A. Subtract $22,000 from the subject property
B. Subtract $22,000 from the comparable
C. Add $22,000 to the subject property
D. Add $22,000 to the comparable

>> CORRECT ANSWER IS: D

(methods of estimating value) The adjustment process, or comparison process, is accomplished by adjusting the sales price comparables for differences with the subject property. 


Which of the following  values is used to determine real property taxes?

A. Market Value
B. Appraised Value
C. Assessed Value
D. All of the above

>> CORRECT ANSWER IS: C

(nature of value) Tax computations are based on the assessed value of the property, which is assigned by the county tax assessor’s office.


Which of the following is a true statement?

A. Physical life is generally longer than economic life
B. Physical life is generally shorter than economic life
C. Physical and economic life are generally the same
D. It is impossible to tell

>> CORRECT ANSWER IS: A

(principles of value) The physical life of a building is generally longer than its economic life. For example, a little shop located in what was once the business center of town. When a new shopping center is built, the customers go to the new center. The structure of the little shop may still be very good, but it has no business. The economic life has passed.


The construction of a new highway will divert traffic away from an area and cause a decline in property values. This is an example of what type of depreciation?

A. Functional
B. Physical
C. Economic
D. None of the above

>> CORRECT ANSWER IS: C

(principles of value) Factors outside the property that affect value are considered to be economic obsolescence. Economic obsolescence is always incurable because the owner has no control over matters outside their property boundaries.


What is the economic characteristic stating that a person will buy based on the expectation of a future benefit?

A. Increasing returns
B. Highest and best use
C. Substitution
D. Anticipation

>> CORRECT ANSWER IS: D

(principles of value) Anticipation is when an investor purchases a property based on its future potential income. 


A landlord is obligated to provide all of the following EXCEPT:


A. quiet enjoyment
B. safe and habitable premises
C. use as the tenant and landlord negotiate
D. possession by the tenant

>> CORRECT ANSWER IS: C

(leases as contracts) The tenant may not use the property for an illegal purpose, even if the landlord and tenant so negotiate (the contract would be void). The tenant is obligated to exercise reasonable care for the property and may not use the property for an illegal purpose.


To be legally binding, a real estate sales contract MUST contain a:

A. list of personal property
B. commission to be paid to the broker
C. property description
D. all of the above

>> CORRECT ANSWER IS: C

(offers/purchase agreements) Sales contracts must include a description of the property to be sold. The property address is sufficient for the sales contract; while deeds and titles require a legal description. Commission is agreed upon in the listing agreement, not the sales contract. Personal property may or may not transfer with the real property. Therefore, the best answer is property description.


Which item returns the parties to their original position?

A. novation
B. subordination
C. rescission
D. discharge

>> CORRECT ANSWER IS: C

(rescission and cancellation agreements/other contract terminations) A rescission or cancellation agreement is an agreed upon remedy in a contract which allows parties to terminate under specified conditions. Rescission allows the parties to return to their original positions before contracting.


If there is a breach of a valid contract for the sale for real property, which of the following remedies is available to the party who is not in breach?

A. rescission
B. specific performance and monetary damages
C. punitive damages
D. both 1 and 2

>> CORRECT ANSWER IS: A

(rescission and cancellation agreements/other contract terminations) If a party is in material breach of a sales contract, rescission is a remedy available to the non-breaching party. Other remedies available to the non-breaching party include specific performance OR monetary damages, but not both. Punitive damages is a remedy that is not available for breach of contract.


A lease entitles a tenant to all of the following except:

A. exclusive use
B. ownership
C. possession
D. both A and B

>> CORRECT ANSWER IS: B

(leases as contracts) The only listed item that a tenant is NOT entitled to is ownership. Ownership is held by the landlord.


A buyer enters into a sales contract with a seller. Which of the following could make the sales contract voidable?

A. the buyer provides no earnest money deposit
B. the seller, being illiterate, signed the agreement with an “X”
C. the seller was under the influence of alcohol when the contract was signed
D. the seller dies after executing the contract but before closing

>> CORRECT ANSWER IS: C

(general knowledge of contract law) A voidable contract is one that appears to be valid, but can be declared void by one of the parties under certain circumstances. A person who was under the influence could be considered incompetent at the time of signing, and could therefore declare the contract void. He may also elect to let the contract stand. However, note that the seller’s intoxication must be to a degree that he did not understand the nature and consequences of executing the contract.


The clause in a lease that allows rent to increase is a/an:

A. acceleration clause
B. percentage clause
C. escalator clause
D. contingency clause

>> CORRECT ANSWER IS: C

(leases as contracts) Of the choices, only an escalator clause specifies that rent will increase at periodic times by predetermined amounts.


Which of the following would be invalid if it did NOT contain a description of the property?

A. a listing agreement
B. a contract for the sale of real property
C. a real estate option agreement
D. all of the above

>> CORRECT ANSWER IS: D

(general knowledge of contract law) All of the listed contracts, which involve the sale of land, must include a description of the property.


If the seller makes a counter-offer, when may that counter-offer be withdrawn?

A. at any time before settlement
B. at any time prior to acceptance
C. within 72 hours
D. within 24 hours

>> CORRECT ANSWER IS: B

(general knowledge of contract law) Like an offer, a counter-offer may be withdrawn at any time before acceptance by the offeree.


Under which of the following conditions would a buyer most likely sue for specific performance?

A. if the seller did not inform the buyer that the property being purchased is a servient estate
B. if the seller defaulted on the sales contract before closing
C. if the broker lied about the location of the schools
D. if the salesperson misquoted the size of the lot

>> CORRECT ANSWER IS: B

(rescission and cancellation agreements/other contract terminations) If the size of the lot, location of the schools, or the fact that the property is a servient estate are real issues for the buyer, then he would not sue to have the terms of the contract carried out. If the seller tries to back out of the contract, then the buyer would probably sue.


Truth-In-Lending (Regulation Z) applies to which of the following?

A. a loan to purchase a single family home
B. a purchase money mortgage
C. a loan to purchase a 16-unit apartment building
D. all of the above

>> CORRECT ANSWER IS: A

(financing/credit laws) Truth-In Lending applies only to consumer loans. If an individual loans money, as in a purchase money mortgage, Regulation Z would NOT apply. In addition, this regulation does not apply to commercial property or multi-family dwellings with more than 4 units.


Which of the following could be omitted without violating TILA?

A. interest rate
B. number, amount, and frequency of payments
C. amount of down payment
D. selling price

>> CORRECT ANSWER IS: D

(financing/credit laws) The selling price of the property is NOT required under TILA because it is unrelated to the financing.


A mortgage could include all of the following clauses, EXCEPT:

A. defeasance
B. alienation
C. subrogation
D. acceleration

>> CORRECT ANSWER IS: C

(mortgages/deeds of trust) A mortgage will generally contain all of the clauses mentioned, except for the subrogation clause. Subrogation clauses are commonly associated with an insurance policy. If your insurance company pays you, a subordinate clause provides the right to seek reimbursement from the other party. You subrogate (give) your rights to the insurance company.


Which of the following entities make direct mortgage loans available to prospective borrowers?

A. life insurance companies
B. commercial banks
C. mortgage brokers
D. all of the above

>> CORRECT ANSWER IS: D

(sources of loan money) Another trick question! This one is a play on words to tempt you into an assumption. Note that the question asks you to identify entities that make direct loans AVAILABLE, NOT entities that MAKE DIRECT LOANS. All of the listed choices make direct loans, EXCEPT for mortgage brokers. However, in addition to the other choices, mortgage brokers make direct loans available by matching lenders with buyers. While arguably “unfair”, this type of question illustrates how you must understand the content AND potential traps.


Which of the following is not covered under Regulation Z?

A. loan amount
B. down payment
C. prepayment penalties and frequency of payments
D. the number, amount and frequency of payments

>> CORRECT ANSWER IS: C

(financing/credit laws) Prepayment penalties are not a cost of obtaining credit. Regulation Z requires disclosure of those items which affect the cost of getting the loan.


A developer divides his property into 5 separate lots. He pledges all 5 as security for a loan in order to obtain money for the construction of a house on each parcel. When he sells one lot with improvements, the bank releases that particular lot from the security so that the developer may convey title to the new purchaser. The loan obtained by the developer could be described as which of the following:

A. package mortgage
B. blanket mortgage
C. wraparound mortgage
D. open mortgage

>> CORRECT ANSWER IS: B

(mortgages/deeds of trust) A blanket mortgage is one which covers more than one piece of property. A blanket mortgage usually contains a partial release clause as described in the question.


Which of the following is true of S&Ls?

A. they tend to offer higher interest rates on deposits than commercial banks
B. they tend to be chartered by a federal or state government
C. they could be regulated by OCC or FDIC
D. all of the above

>> CORRECT ANSWER IS: D

(sources of loan money) Savings and Loan Associations (S&Ls) tend to offer higher interest rates on deposits than commercial banks. S&Ls must be chartered by either a state or federal government. If chartered federally, they are regulated by the Office of the Comptroller of the Currency (OCC) and their accounts are insured by the Federal Deposit Insurance Corporation (FDIC).


Helen obtained a loan from the ABC Mortgage Company. The monthly payments were set at a rate to fully amortize the loan over a 25-year period. In the note that Helen signed, it specified that the entire balance was due at the end of 120 payments (10 years). What type of mortgage does this most likely describe?

A. open end
B. purchase money
C. balloon
D. participation

>> CORRECT ANSWER IS: C

(mortgages/deeds of trust) In this loan, the final payment (remaining balance of the loan in 10 years) would be considerably larger than the regular monthly payments based on a 25 year amortization, making the loan a balloon mortgage.


The right of a city government to take title to private property for public improvements is subject to all of the following, except:

A. the ownership interest held by the current owner
B. public purpose
C. economically profitable uses of the land by the owner
D. both 1 and 3

>> CORRECT ANSWER IS: D

(government rights in land) The exercise of eminent domain requires a public use and just compensation for the taken property. The ownership interests of the current owner and whether the use is economically viable is irrelevant.


Ms. Jones wants to build a porch on the back of her house. The new construction will extend beyond the rear setback restriction. She is most likely to receive permission to build the porch through a:

A. spot zoning permit
B. zoning variance
C. conditional use permit
D. none of the above

>> CORRECT ANSWER IS: B

(public controls based in police power) Conditional use permits and variances are similar in function, but different in availability. Generally, variances are issued to remedy case-specific hardships. Meanwhile, conditional use permits are used where no hardship exists, but the change will benefit the community as a whole. At face value, there appears to be no benefit to the neighborhood for this individual homeowner’s addition. Spot zoning is avoided because it rarely survives a legal challenge.


All of the following are limitations on ownership of property, EXCEPT:

A. zoning
B. police power
C. building codes
D. seisin

>> CORRECT ANSWER IS: D

(government rights in land) Government rights in land include taxation, eminent domain, police power, and escheat. These are limitations on ownership of private property. Zoning and building codes are both examples of police power. Seisin is, by definition, ownership.


Paul Property Owner makes significant improvements to a lot that he has held for seven years. Which of the following is most likely true regarding Paul’s improvements?

A. Paul’s land will increase in value
B. Paul’s land will decrease in value
C. Paul is developing a subdivision
D. either 1 or 2

>> CORRECT ANSWER IS: D

(commercial property/income property) Improvements may have a positive or negative affect on the economic value of the land and surrounding areas, depending on the type of development or improvement.


All of the following situations are examples of downzoning, except:

A. from single family dwellings to multi-unit apartments
B. from agricultural use to single-family dwellings
C. from single-family dwellings to a conservation area
D. both 1 and 2

>> CORRECT ANSWER IS: D

(public controls based in police power) Downzoning occurs when the zoning regulations are changed from a higher, more active use, to a lower less active use.


One of the principal purposes for zoning is to:

A. restrict business activities
B. effectively plan
C. affect property values
D. generate revenue through taxes

>> CORRECT ANSWER IS: B

(public controls based in police power) Zoning ordinances are the tools city planners use to implement a master plan. Through zoning, a master plan enables more effective planning and consistency in regards to a variety of uses.


In a typical agreement, the property manager would be authorized to do all of the following EXCEPT:

A. enter into a 2 year lease, verbally
B. hire and fire employees
C. collect rents every month
D. furnish the owner with a monthly statement of income and expenditures

>> CORRECT ANSWER IS: A

(property management and landlord/tenant) An oral lease that is over ONE year is unenforceable because it violates the statue of frauds. In the best interests of the owner, a property manager would not be permitted to take an oral lease, regardless of the period of time.


In relation to a homeowner’s personal residence, one can claim deductions on a federal tax return for which of the following items?

A. principal payments on the mortgage loan
B. interest payments on the mortgage loan
C. repairs and maintenance on the house
D. improvements made to the property

>> CORRECT ANSWER IS: B

(commercial property/income property) Of the items listed, the homeowner may deduct only the interest paid on his or her mortgage loan.


Which of the following is not a private limitation on title?

A. liens
B. deed restrictions
C. eminent domain
D. encroachments

>> CORRECT ANSWER IS: C

(government rights in land) All of the choices except eminent domain are private limitations on title because they are man-made (i.e., they arise because of the actions or omissions of one or more of the parties), whereas eminent domain actions arise pursuant to application of the law.


Jon wants to build a house on his lot. The house will sit 20 ft. from the front lot line. The city ordinance calls for a minimum setback of 25 ft. May Jon build his house in the manner described?

A. no, unless Jon receives a zoning variance
B. yes, so long as Jon obtains spot zoning
C. yes, so long as Jon receives a special use permit
D. either 1 or 3

>> CORRECT ANSWER IS: A

(public controls based in police power) Conditional/Special use permits and variances are similar in function, but different in availability. Generally, variances can be issued to remedy case-specific hardships. Meanwhile, conditional use permits are used where no hardship exists, but the change will benefit the community as a whole. At face value, there appears to be no benefit to the neighborhood as a whole for this individual homeowner’s addition.


The zoning commission has proposed a change that could dramatically impact the subject property in a broker’s listing agreement. This information:

A. should be withheld from any prospective buyer
B. must be promptly disclosed to all parties
C. could, at the discretion of the owner, be disclosed to prospective buyers
D. must be promptly disclosed to all parties only if the change is approved

>> CORRECT ANSWER IS: B

(agency duties) Disclosure of this information is required because it is “material.” The broker must disclose this material information to the seller and any prospective buyer.


Susan and Sally enter into a buyer-broker agreement. However, Sally subsequently falls on hard times. Susan gets nervous and terminates the agreement. Is Susan in breach?

A. yes, if Sally is the broker
B. no, so long as Sally takes no action
C. no, if Sally filed for bankruptcy
D. yes, if both parties agreed

>> CORRECT ANSWER IS: C

(common types of agency agreements) It makes no difference whether Sally is the broker or the buyer, or whether Susan takes action (a breach is a breach, even where it is not penalized). However, where a party dies, suffers from insanity, or enters into bankruptcy, the contract may be terminated without penalty.


Jon is an agent for Betty the buyer. This relationship could exist by virtue of:

A. an oral agreement
B. judicial action
C. validation
D. all of the above

>> CORRECT ANSWER IS: D

(law, definition, & nature of agency relationships) Agency may be created by express agreement, which may be oral or written. Agency may also be created by estoppel (requires judicial action) and ratification (sanction or validation of broker’s conduct).


A listing agreement will automatically terminate:

A. if the selling agent changes brokers
B. on the date specified in the listing agreement
C. if the owner abandons the property
D. all of the above

>> CORRECT ANSWER IS: B

(common types of agency agreements) The only true statement is that a listing agreement will terminate on the date specified in the agreement. There are other reasons why a listing would terminate, but they are not offered as answers. That the owner abandoned his property is NOT grounds to terminate a listing–he may still enlist a broker to attempt to sell his abandoned property. However, if the broker abandoned the listing, the seller would be justified in terminating the listing.


Jan accepts Jenny’s offer to purchase. Jenny’s salesperson delivers the downpayment to Jan’s salesperson. Jan’s salesperson delivers the funds to her broker, who places the money into escrow. Jan’s broker owes a fiduciary duty to:

A. Jan
B. Jenny
C. Jan and Jenny
D. none of the above

>> CORRECT ANSWER IS: C

(agency duties) Escrow agents owe fiduciary duty to both the buyer and seller. 


Randy buys a house using a VA loan to finance the purchase. The listing broker and selling broker split the commission on a 75/25 ratio. If the Department of Veteran’s Affairs learns about the arrangement between the brokers, what will they do?

A. suspend the licenses of both brokers
B. revoke the licenses of both brokers
C. force both to refund the commission
D. nothing

>> CORRECT ANSWER IS: D

(commission and fees) Brokers very often divide commissions on cooperative sales. This is perfectly legal and ethical. The VA has no authority to take disciplinary action against licensed real estate professionals.


A licensed real estate salesperson may legally accept an extra commission on a difficult sale from:

A. an appreciative seller
B. a thankful buyer
C. his or her broker
D. the mortgage lender

>> CORRECT ANSWER IS: C

(commission and fees) A licensed salesperson may accept compensation for an act of real estate brokerage from his/her employing broker and NO ONE ELSE.


Seller Jones gives Martin an exclusive listing to sell his property. Martin is a salesman for Broker Doe. Which of the following expresses the relationships between these parties?

A. Jones has contracted for the services of Martin
B. Doe has a fiduciary relationship with Martin
C. Martin is the agent of Doe
D. Jones is the agent of Doe

>> CORRECT ANSWER IS: C

(law, definition, & nature of agency relationships) Jones has contracted for the services of Doe (the broker), not Martin (the salesman). Martin (salesperson) has a fiduciary relationship with Doe (his broker).


A broker represents a buyer. While the broker is showing a property to his client, the broker learns certain information. The broker may NOT disclose which of the following to his client:

A. that the current owner has HIV
B. that the seller is in poor financial condition
C. the broker is unrestricted because he represents the buyer
D. that the seller will not accept an offer based on VA financing

>> CORRECT ANSWER IS: A

(agency duties) The broker is the buyer’s agent and owes fiduciary duties to his client. As such, he must keep the buyer reasonably informed about material information that he can legally disclose. The seller’s financial position is material to the buyer’s negotiation with the seller, and may impact the amount the buyer may offer. Restrictions on offers that the seller is willing to accept (ex. VA financing) are also material. Generally, information or events which do not physically affect the property or future ownership rights (stigmatizing events) need not be disclosed. However, the broker is restricted by law and cannot disclose the seller’s HIV status under Fair Housing and federal privacy laws.


Who is a person engaged to act in the place of another by contractual agreement?

A. a principal
B. an agent
C. an attorney-in-fact
D. either 2 or 3

>> CORRECT ANSWER IS: D

(law, definition, & nature of agency relationships) The question could describe the precursor to either an agency relationship or a power of attorney.


Broker A shows a house with a faulty roof. When he finds out about the roof, should he tell the buyer/customer?

A. yes, it is an agency responsibility
B. yes, it is a material fact
C. only if he is a dual agent
D. only if he has the seller’s permission

>> CORRECT ANSWER IS: B

(material facts) The broker must disclose all material adverse facts about the physical condition of the property that are known to the broker.


Which of the following is a broker NOT required to disclose to a prospective purchaser?

A. the property is haunted
B. the state plans to construct a new highway near the property
C. the property is subject to seasonal flooding
D. the monthly fee charged by the homeowners’ association

>> CORRECT ANSWER IS: A

(material facts) The broker must disclose all material adverse facts about the physical condition of the property that are known to the broker. That the property is haunted is an event or occurrence that does not affect the physical or environmental integrity of the property or its improvement (stigmatized property).


A property owner tells the broker that his property is structurally sound, but later the broker discovers that there are termites on the property. The broker must:

A. inform the seller and all prospective buyers
B. contact a pest control company
C. encourage the seller to remedy the problem
D. all of the above

>> CORRECT ANSWER IS: A

(material facts) All material information known by a licensee must be disclosed to all parties in a transaction. Termite damage is material information. However, licensees have no obligation to contact a pest control company, or to encourage the seller to fix problems (although they certainly could do this).


While previewing a house, the salesperson notices water stains behind the draperies. When asked, the owner denied there were any water problems. If the salesperson shows the property and fails to mention the water stains, the salesperson is guilty of:

A. fraud
B. misrepresentation
C. nothing, because his fiduciary responsibility is with the owner
D. puffery

>> CORRECT ANSWER IS: A

(material facts)  Since they are evidence of leakage or flooding, water stains are material facts that must be disclosed if known by the salesperson. Because the salesperson knew of the stains and failed to disclose them, his conduct is fraudulent.


Which of the following is NOT a latent defect?

A. worn carpeting
B. seasonal flooding in the basement
C. a foundation crack covered with paneling
D. a faulty, but working, heating system

>> CORRECT ANSWER IS: A

(material facts) A latent defect is one that is not readily noticeable. Worn carpets are obvious, while the other answer choices would probably not be known by mere observation.


In the process of taking a listing, a salesperson notices water stains on the ceiling of one of the rooms. What should the salesperson do?

A. nothing because it is not a latent defect
B. nothing because the stain is old
C. ask the owner if there is a leak
D. decline to list the property

>> CORRECT ANSWER IS: C

(need for inspection, obtaining, verifying information) The licensee must disclose all material facts about the property. The agent should inquire about the stain in order to determine if there is a problem. Remember that the licensee is required to disclose known material information to prospective buyers.


A Hispanic family asks to see homes in the $125,000 to $140,000 price range. The broker only showed them property in integrated areas of the community, though there were appropriately priced homes in all-white areas of town. The broker is guilty of:

A. nothing, because the family did not specifically request to see homes in all-white areas
B. steering
C. blockbusting
D. gentrification

>> CORRECT ANSWER IS: B

(fair housing laws) This is a prime example of STEERING. The broker should show all properties that meet the needs and wants of the buyer client. However, if the broker offered to show property in a predominately Caucasian area and the buyers refused to look, that would be another story.


A developer has been successful in the renovation and redevelopment of apartment projects. The developer has an excellent credit history, but has been denied a loan to renovate a project in a crime-ridden area of town. This is an example of:

A. permissible business judgment
B. redlining
C. blockbusting
D. steering

>> CORRECT ANSWER IS: A

(fair housing laws)  Based on the information given, this is permissible. However, if the loan was denied because the area is occupied by members of a protected class, then it would be discriminatory (redlining). In this situation, it appears that the decision to deny was based on crime, which does not trigger the Fair Housing Act (criminals are not a protected class).


A religious organization operates a hotel as a means to raise money and support themselves. Which of the following statements is true?

A. they are exempt from the 1968 Fair Housing Laws
B. they may limit room rentals to members of the organization
C. they are exempt from the “religion” portion of the Fair Housing Act
D. they must make rooms available to all persons

>> CORRECT ANSWER IS: D

(fair housing laws) Religious groups CAN be exempt and exclude others, but not when they are operating a commercial establishment, such as a hotel.


Which of the following groups was NOT protected by Title VIII of the 1968 Federal Fair Housing Law?

A. national origin
B. handicapped
C. religion
D. race

>> CORRECT ANSWER IS: B

(fair housing laws) Protection of handicapped persons was not included until the Federal Fair Housing Law was amended in 1988.


The Fair Housing Law protects seven groups. Which of the following is not specifically protected?

A. people of a particular religious group
B. pregnant women
C. illegal drug addicts
D. AIDS victims

>> CORRECT ANSWER IS: C

(fair housing laws) Protected classes include: race, color, religion, sex, national origin, handicapped, and familial status. Handicap does not include illegal drug addiction.


A broker has been approached by a minority that requests to see properties in a specific section of a city. The broker refuses and indicates that the buyer would be better off in a part of the city where there is a greater concentration of his minority group. The broker’s illegal conduct is known as:

A. blockbusting
B. redlining
C. panic selling
D. steering

>> CORRECT ANSWER IS: D

(fair housing laws) Directing buyers into or away from specific property based on their minority status is steering.


Enforcement of the Fair Housing Law of 1968 is the primary responsibility of:

A. the Federal Housing Administration
B. the Federal Department of Housing and Urban Development
C. the Federal National Mortgage Association
D. the Government National Mortgage Association

>> CORRECT ANSWER IS: B

(fair housing laws) The Department of Housing and Urban Development (HUD), has primary responsibility for enforcing the Fair Housing Law.


A real estate broker wishes to deposit an earnest money check in his business operating account so the purchaser can earn a higher interest rate on her funds. Can he do this?

A. Yes, if the purchaser receives a comparison of available interest rates
B. Yes, if the broker promises to insure such funds will be available at closing
C. No, these funds must be placed in a separate escrow account
D. No, the broker cannot guarantee a higher interest rate

>> CORRECT ANSWER IS: C

(trust accounts) All funds held on behalf of others must be deposited in a separate escrow account, NOT in the business operating account.


If included in an advertisement, which of the following statements would constitute a Fair Housing violation?

A. non-smokers preferred
B. military discount
C. Catholics preferred
D. senior citizens welcome

>> CORRECT ANSWER IS: C

(fair housing laws) Specifying a preference for one religion or another sends the message that other religions are impermissible.


If a person feels they were discriminated against in a real estate transaction, they would file a complaint with:

A. the Federal Bureau of Investigation
B. the Federal Trade Commission
C. the Department of Housing and Urban Development
D. the Department of Health, Education and Welfare

>> CORRECT ANSWER IS: C

(fair housing laws) Fair housing complaints may be filed with HUD.


Three people own a piece of property as tenants-in-common. Two of the owners want to sell the property, but the third party does not. The two owners that want to sell:

A. cannot sell because all three must agree
B. may file suit for partition
C. may seek detachment
D. may sever the third party’s interest

>> CORRECT ANSWER IS: B

(types of ownership) Both joint tenants and tenants-in-common may file suit for partition, which is a request to a court to divide property owned concurrently. If indivisible, the court could order the sale of the property and divide the proceeds.


Which of the following is NOT considered to be a legal description of property?

A. metes and bounds
B. lot and block
C. rectangular survey system
D. taxpayer federal ID number

>> CORRECT ANSWER IS: D

(land characteristics and property descriptions) All choices are valid methods of legal description, except for a taxpayer’s federal identification number.


Which statement about encumbrances is correct?

A. an encumbrance could increase real property value
B. a lease is an example of an encumbrance
C. encumbrance can only be created by an owner of real property
D. both A and C

>> CORRECT ANSWER IS: B

(encumbrances) An encumbrance is anything that affects the title to real property and diminishes its value. There are some positive encumbrances, but if there is an encumbrance on the property, the owner’s rights are diminished. Encumbrances can be created by either individual or government action. Finally, a lease is an example of an encumbrance.


An adequate metes and bounds description will have all of the following, EXCEPT:

A. a definite point of beginning
B. four sides
C. closure
D. linear measurements and compass directions

>> CORRECT ANSWER IS: B

(land characteristics & property descriptions) Property does not need to be shaped like a square in a metes and bounds description. It can be any shape, with more or less than four sides. 


The land description that uses a recorded subdivision plat is the:

A. geodetic survey method
B. rectangular survey system
C. lot and block system
D. metes and bounds survey method

>> CORRECT ANSWER IS: C

(land characteristics and property descriptions) Recorded subdivision plats are used with the lot, block, and subdivision method of land description.


Property taxes on cooperative units are assessed in the form of:

A. individual tax bills for each unit
B. a single tax bill, prorated among individual units
C. annual tax bills based on the type of unit
D. biannual tax bills based on the type of unit

>> CORRECT ANSWER IS: B

(types of ownership) The tax bill is issued to the corporation or owner entity, and is then prorated among the proprietary tenants.


Which of the following would be disclosed by a metes and bounds survey?

A. easements
B. marketability
C. encroachments
D. both 2 and 3

>> CORRECT ANSWER IS: C

(land characteristics and property descriptions) The survey should definitely reveal any physical encroachments. Meanwhile, easements may not be obvious and would have to be checked in the county records. Once this is checked, they are indicated on the plat that the surveyor prepares. Depreciation is not something the surveyor considers, nor does he consider the marketability of the property. A surveyor is concerned only with the physical characteristics of the property itself.


A house is sold for $47,000 with a loan of 75% for 25 years. The interest rate is 3/4% per month. A principal and interest payment of $288 is made each month. What is the total interest paid during the life of the loan?

A. $35,250
B. $39,400
C. $79,313
D. $51,150

>> CORRECT ANSWER IS: D

(calculations for transactions) First, let’s figure out some key information: 

  • Total loan = $47,000 Sales Price x 75% = $35,250 loan (principal)
  • Monthly payment (principal and interest) = $288 per month.

The problem tells us that the monthly payment is $288 per month and that the life of the loan is 25 years. Using this information, we can calculate the total paid to the bank over the life of the loan.

  • Total number of payments = 25 x 12 = 300 payments
  • Total amount paid = $288 x 300 = $86,400

From here, we can find the total interest by subtracting the loan principal from the total amount paid over the life of the loan.

  • Total interest = $86,400 – 35,250 = $51,150

Each floor of a two-story office building is 10.5 feet high, 18 feet wide, and 54 feet long. How many cubic yards is in the entire building?

A. 10,206
B. 20,412
C. 378
D. 756

>> CORRECT ANSWER IS: D

(general math concepts) Remember that Volume = Length x Width x Height. Use this formula to calculate the volume of the building in cubic feet:

  • Volume (per floor)= 54ft x 18ft x 10.5ft = 10,206 cubic ft. 
  • Volume (entire building) =  10,206 cubic ft. x 2 = 20,412 cubic ft
Now, we can convert the volume into cubic yards. 
  •  1 cubic yard = 27 cubic ft. 
  • Volume = 20,412 cubic ft. / 27 = 756 cu yd.

A seller wishes to net $60,000 on the sale of his house after paying off his $32,000 loan balance and a 6% broker commission. What is lowest possible selling price that will give the seller his desired net?

A. $97,520
B. $97,872
C. $97,759
D. $98,233

>> CORRECT ANSWER IS: B

(calculations for transactions) Start by adding all of the pay-outs: 

  • Existing mortgage = $32,000; 
  • Sellers desired net =$60,000.
  • Amount required (not including commission) = $32,000 + $60,000 = $92,000 

In addition, the broker will receive a 6% commission on the sales price. Using that information, we can assume that $$92,000 is 94% of the selling price. 

  • 100% – 6% =  94%

So, we know that “something” times 94% is equal to $92,000 

  • 0.94X = $92,000

Therefore, dividing $92,000 by 94% will allow us to figure out what that “something” is. 

  • X = $$92,000 / 0.094
  • X = $97,872.34

Rounded to the nearest dollar, the seller should sell the house for at least $97,872 in order to make his desired net profit. You can prove your answer as follows: 

  • $97,872 x 6% = $5,872 commission; 
  • $97,872 – $5,872 = $92,000; 
  • $92,000 – $32,000 (to pay off old loan) = $60,000 for the seller.

A developer owns four parcels of land. He plans to sell one parcel for construction of an office building. The building plans will require 2 acres which will include the actual building, landscaping and parking. Which of the following is the smallest parcel that would accommodate this construction?

A. Parcel A: 83 feet x 950 feet
B. Parcel B: 102 feet x 840 feet
C. Parcel C: 120 feet x 860 feet
D. Parcel D: 140 feet x 900 feet

>> CORRECT ANSWER IS: C

(general math concepts) First calculate the area needed for the construction: 

  • 2 acres x 43,560 (sq. ft. per acre) – 87,120 sq. ft.

 Then calculate the square footage of each of the lots. 

  • 83 x 950 = 78,850; This lot is too small. 
  • 102 x 840 = 85,680; This lot is too small. 
  • 120 x 860 =103,200; This lot is large enough. 
  • 140 x 900 =126,000; This lot is large enough. 
The question asks which is the smallest lot that would accommodate the construction. Therefore, the answer is Parcel C.

Fabian owns a lot that measures 80 feet by 20 feet. What is the area of his lot?

A. 1,500 square feet
B. 1,600 square feet
C. 1,400 square feet
D. 1,200 square feet

>> CORRECT ANSWER IS: B

(general math concepts) Determine Fabian’s area as follows: 

  • Area = length x width 
  • Area = 80ft x 20ft = 1,600 sq. ft.

A deed delivered in escrow is given to:

A. A neutral third party
B. The mortgagee
C. The buyer’s attorney
D. The seller’s attorney

>> CORRECT ANSWER IS: A

(deed elements) Grantor (seller) delivers the deed to an escrow agent who delivers it to the grantee (buyer) upon fulfillment of specified conditions (or returns it to grantor if conditions fail). An escrow agent is a neutral third person authorized by the parties to hold property or perform specified acts.


Gill had a bad year. In September 1991, Gill’s vacation home had a 1st mortgage, a mechanic’s lien, and a special assessment filed against it. Later, in May 1992, a second mechanic’s lien was filed against the property. Which lien has priority?

A. Mortgage
B. 1st mechanics’ lien
C. Special assessment
D. 2nd mechanics’ lien

>> CORRECT ANSWER IS: C

(tax aspects) Because special assessments are a form of real property tax, it would have priority over all the other liens. Real estate property taxes take priority over other types of liens, regardless of their date of recording.


All of the following represent a transfer of real property that takes place on the death of an owner except:

A. Escheat to the state
B. Transfer by devise
C. Transfer by descent
D. Transfer by eminent domain

>> CORRECT ANSWER IS: D

(conveyances after death) Escheat is when a deceased owner has no will or heirs, so the property transfers back to the state. However, in most situations, the title immediately passes to the person it is devised to in a will. Transfer by descent states that in the absence of a valid will, the living heirs will inherit the estate. Meanwhile, eminent domain is the right of government to take ownership of private property, so long as it is taken for a legitimate public use and just compensation is paid to its (still alive) owner.


Bob the Bigot imposes a deed restriction on his property, which prohibits the sale of his home to anyone from France. Bob’s deed restriction is:

A. Voidable
B. Void
C. Enforceable
D. Irrelevant

>> CORRECT ANSWER IS: B

(private controls) Illegal covenants are void (not voidable) and unenforceable. Discrimination based on national origin is illegal under fair housing laws; therefore, Bob’s deed restriction is void and unenforceable. While Bob’s restriction is arguably irrelevant since it is unenforceable, that answer choice is not the “best” choice because it expresses an opinion.


Bill sells real property to Betty through an escrow closing. Bill relinquishes control of the deed, but Betty does not receive it. What most likely happened to the deed?

A. It was stolen
B. Bill placed it in a safe deposit box
C. Bill gave it to his wife to hold
D. Bill delivered it to an escrow agent

>> CORRECT ANSWER IS: D

(escrow or closing) Note that the question states this is an escrow closing. In an escrow closing, the deed is placed in escrow, where the grantor relinquishes his control of the deed. The escrow agent delivers the deed to the grantee upon the completion of agreed upon conditions (usually specified in the sales contract).


Which of the following deed clauses is most likely to state the names of the parties?

A. Premises
B. Habendum
C. Testimonium
D. None of the above

>> CORRECT ANSWER IS: A

(deed elements) Deeds may contain all of the following clauses: premises, habendum, and testimonium. However, only the premises clause names the parties to the transaction.


The purpose of a recording act is to:

A. Ensure title is marketable
B. Raise revenue
C. Create a local public record
D. Protect property owners

>> CORRECT ANSWER IS: C

(recording acts) Recording acts create local public records that are available for public inspection and ensures public notice of all recorded information.


Which of the following statements best describes the principle of highest and best use?

A. Value created by, and maintained in proportion to, the use characterized by nearby real estate
B. Property utilized in the most profitable manner
C. Future performance, not past performance
D. Property attains its highest value when homogeneously developed

>> CORRECT ANSWER IS: B

(principles of value) The highest and best use of property is that legal use which will provide the greatest net income to the owner. It must also be a use which is feasible and customary.


One property has lower taxes, new fixtures, and conforms to the style of other properties in the neighborhood. Another nearby property does NOT have any of these benefits. The latter property would have:

A. Economic desirability
B. Functional desirability
C. Economic obsolescence
D. Functional obsolescence

>> CORRECT ANSWER IS: D

(principles of value) Functional obsolescence occurs when an improvement loses value because it becomes functionally inadequate; this may be caused by poor design or merely the improvement’s age. Because the second property has a poor design and/or lacks the improvements of the rest of the neighborhood, the appraised value will be reduced.


Which of the following items would normally be contained in an appraisal for a parcel of real property:

A. The income of the prospective buyer
B. The highest and best use
C. The price the owner paid for the property
D. None of the above

>> CORRECT ANSWER IS: B

(methods of estimating value) The highest and best use of the property is included in an appraisal report. After gathering data pertinent to the appraisal report, the appraiser determines the use (may be different from current use), which gives the subject property its greatest value as of the time of appraisal.


Physical depreciation most commonly refers to:

A. Obsolescence
B. Wear and tear
C. Outmoded design
D. Property over 15 years old

>> CORRECT ANSWER IS: B

(principles of value) Physical depreciation (deterioration) means “wear and tear” or physical damage to the property through use. Obsolescence, either functional or economic, refers to other types of depreciation.


The capitalization approach is considered to be:

A. A statement of future income
B. The present value of property based on present and future income
C. The actual cost of the property
D. Another name for the GRM (Gross Rent Multiplier)

>> CORRECT ANSWER IS: B

(methods of estimating value) The income (capitalization) approach is used to calculate the estimated present value of a property through its estimated present and future earnings. A future income statement has nothing to do with the value of the property.


Which of the following factors would have the LEAST effect on an appraisal?

A. The real estate market
B. Income to be derived from the property
C. Location of the property
D. Livelihood of the prospective buyer

>> CORRECT ANSWER IS: D

(elements of value) The livelihood (the means by which a person makes a living) would have the least effect on the appraisal. What the buyer does for a living has absolutely no bearing on value. However, the real estate market, location, and income to be derived from the property has considerable effect on the appraisal.


In anticipation of selling his home, an owner has central air conditioning installed. How would an appraiser best determine the value of the property after installation?

A. By making a comparison
B. By adding the cost to the unimproved value
C. By adding the cost to the depreciated value
D. Both B and C

>> CORRECT ANSWER IS: A

(methods of estimating value) Because this is residential property, the appraiser will use the market data approach and compare the subject property to other houses in the area that have central air conditioning.


All of the following could render a contract voidable EXCEPT:

A. one party to the contract was legally insane at the time of signing
B. the contract was for an illegal purpose
C. one party was intoxicated at the time of signing
D. both A and B

>> CORRECT ANSWER IS: D
>> YOUR ANSWER IS: [[NONE]]

(general knowledge of contract law) You must select the choice(s) that are not true (those that could NOT render a contract void). If one party to the contract was intoxicated to the point that they did not understand their actions, the contract could be voided by that party (resulting contract is voidable, not void). If a party was legally insane or if the contract was for an illegal purpose, the contract would be void, not voidable. Therefore, an illegal purpose and legal insanity do not render a contract voidable and are the best choices.


After closing, a couple moves into their newly purchased home. They notice the living and dining room draperies have been removed. The draperies were included in the ratified sales contract. What can the buyer do?

A. nothing, if the cost to sue would be more than the cost of the drapes
B. sue the seller for specific performance
C. file a mechanic’s lien against the seller
D. either 1 or 2

>> CORRECT ANSWER IS: D

(offers/purchase agreements) If the parties agreed that the draperies would transfer with the property, then the seller’s removal of the draperies is a breach of the sales contract. The buyer COULD either sue for specific performance or do nothing. A mechanic’s lien does not apply to this situation.

 


Liquidated damages from breach of a sales contract are usually available to the:

A. buyer, in the event of the seller’s default
B. seller, in the event of the buyer’s default
C. broker, in the event of the buyer’s default
D. either the buyer or seller where the other defaults

>> CORRECT ANSWER IS: B

(general knowledge of contract law) Liquidated damages are pre-negotiated damages that are due if a party breaches a contract. In real estate sales contracts, it is common for the buyer to offer an earnest money deposit along with his offer on the property. If accepted, the buyer’s earnest money is deposited into an escrow account to serve as either liquidated damages if the buyer defaults, or as a down payment on the property if the sale closes. Generally, if the seller defaults and the buyer choses to rescind the contract, the buyer is entitled to have his earnest money returned (not as liquidated damages).


When leasing property under a net lease, the tenant could deduct all of the following as a business expense, EXCEPT:

A. maintenance
B. fire insurance
C. depreciation
D. utilities

>> CORRECT ANSWER IS: C

(leases as contracts) Under a net lease, the lessee (tenant) pays for maintenance (upkeep) of the property, fire insurance, and utilities. Depreciation is an income tax deduction, available only to the owner and not the tenant.


A contract in which an owner gives a prospective purchaser the right to buy a property at a fixed price and within a stated period of time is called: 

A. a preference
B. an estoppel
C. an exclusive
D. an option

>> CORRECT ANSWER IS: D

(offers/purchase agreements) By definition, an option is the right to buy a property at a fixed price within a stated period of time. The prospective purchaser is the optionee and the owner is the optionor. Note that like any contract, an option must be supported by consideration.


The vendee is:

A. one who buys or offers to buy
B. one who sells or offers to sell
C. one who lends or offers to lend money
D. one who borrows or offers to borrow money

>> CORRECT ANSWER IS: A

(offers/purchase agreements) A vendee is one who buys or offers to buy real estate (buyer). The vendor is one who sells or offers to sell real estate (seller).


Barry makes a $150,000 offer on Pam’s home, subject to financing at 4%. Pam accepts Barry’s offer, but agrees only to 6% financing. Which of the following statements is INCORRECT concerning Pam’s acceptance?

A. it is a partial acceptance of the original offer
B. Barry is now the offeree
C. Pam rejected Barry’s offer
D. Pam may withdraw her offer at any time, prior to acceptance by Barry

>> CORRECT ANSWER IS: A

(general knowledge of contract law) The choice that is NOT true is the best answer for this question. An offer is either accepted or rejected; there is no such thing as partial acceptance. Therefore, partial acceptance is the BEST answer because it is incorrect. Counteroffers are NEW offers which reject (kill) the preceding offer. As such, it is true that Barry is now the offeree to Pam’s counteroffer. Like any offer, a counteroffer may be withdrawn at any time prior to acceptance.


A seller receives an offer from a buyer and responds with a counteroffer. Before the buyer responds to the seller’s counteroffer, the seller receives a better offer from another prospective buyer. Under these circumstances, the seller:

A. may withdraw the counteroffer
B. must advise the second offeror of the pending offer
C. may accept the second offer without consequence
D. must wait for the first offeror’s response

>> CORRECT ANSWER IS: A

(general knowledge of contract law) A counteroffer, like any offer (except an offer in an option contract), may be withdrawn at any time prior to acceptance; there is no requirement to wait for the buyer’s response. There is no requirement to advise the second offeror of the pending counteroffer, and there may be consequences to accepting the second offer without withdrawing the pending counteroffer (the seller could not perform for two buyers at once).


Which of the following could cause an otherwise valid contract to be void and invalid?

A. misrepresentation by one of the parties
B. intoxication
C. mutual, unintentional, and material mistake in fact
D. all of the above

>> CORRECT ANSWER IS: A

(general knowledge of contract law) A party’s misrepresentation could cause an otherwise valid contract to be void and invalid (unenforceable), depending on the nature and circumstances of the misrepresentation. Intoxication and mutual, unintentional, and material mistakes of fact cannot render a contract void, but could render a contract voidable.


A property is listed at $185,000. Four offers are presented. Which offer BEST describes an offer made by a ready, willing and able buyer?

A. an offer for $175,000, all cash
B. a full price offer from a financially qualified buyer, subject only to financing at current market rates
C. an offer at full price, contingent upon the buyer (offeror) first selling his current residence
D. both B and C

>> CORRECT ANSWER IS: B

(offers/purchase agreements) By definition, ready, willing, and able must be on the TERMS OF THE SELLER. The other choices do NOT meet the terms of the seller. Therefore, the best choice is “a full price offer, from a financially qualified buyer, subject only to financing at current market rates.”


S&Ls are least likely to engage in which of the following:

A. originating loans
B. secondary market activities
C. demand deposits
D. commercial loans

>> CORRECT ANSWER IS: D

(sources of loan money) S&Ls generally promote deposits and longer term investments, such as home ownership and private savings.


When a promissory note (given for payment of a parcel of land) has a lien priority which is less than a succeeding claim, it is called:

A. estoppel
B. enumeration
C. subordination
D. none of the above

>> CORRECT ANSWER IS: C

(mortgages/deeds of trust) When a security instrument (mortgage or trust deed) voluntarily takes a priority position that is LOWER than a succeeding claim, it is called subordination.


A budget mortgage payment (PITI) would NOT normally include:

A. A payment toward the principal of the loan
B. A payment toward the interest of the loan
C. 1/12 of the annual real property taxes
D. 1/12 of the annual life insurance premium

>> CORRECT ANSWER IS: D

(general concepts) PITI means principal, interest, taxes, and insurance and is known as a budget mortgage because the owner pays exactly the same amount each month. The insurance portion of PITI is hazard insurance, NOT life insurance.


If an individual defaults on a $100,000 mortgage and only $95,000 is received by the lender as a result of foreclosure, which of the following is true?

A. the lender must file a $5,000 judgment
B. the lender may be entitled to a $5,000 judgment
C. the lender cannot recover the $5,000
D. none of the above

>> CORRECT ANSWER IS: B

(mortgages/deeds of trust) In the situation described, the lender could file for a deficiency judgment against the original borrower and could recover the full amount, depending on the borrower’s other assets.


One of the functions of the FHA is to:

A. build homes
B. plan homes
C. provide insurance
D. loan money

>> CORRECT ANSWER IS: C

(government programs) When it was first established, the purpose of FHA was to set standards of construction for houses. FHA now provides insurance protection for lenders, enabling low downpayments and low interest loans for qualified buyers.


The purpose of Regulation Z is to disclose:

A. interest rates
B. total interest
C. financing charges
D. the term of the loan

>> CORRECT ANSWER IS: C

(financing/credit laws) Regulation Z requires disclosure of all finance charges associated with the granting of a loan. Finance charges include interest rates, total interest, and the term of the loan. However, these are all individual components of the finance charge. Therefore, “financing charges” is the best answer.


The right of a mortgagor to regain his property pending foreclosure is known as:

A. repossession
B. recovery
C. redemption
D. rescission

>> CORRECT ANSWER IS: C

(mortgages/deeds of trust) The right which allows the mortgagor (borrower) to regain his property prior to or after foreclosure is known as redemption.


The money under an FHA loan is provided by:

A. the Federal Housing Administration
B. qualified lenders
C. the FDIC
D. the Federal Treasury

>> CORRECT ANSWER IS: B

(government programs) The money for the loan comes from a qualified lending institution, not FHA. The FHA insures the lender against loss; they NOT loan money to finance the purchase of property.


All of the following situations are examples of downzoning, except:

A. from single family dwellings to multi-unit apartments
B. from agricultural use to single-family dwellings
C. from single-family dwellings to a conservation area
D. both 1 and 2

>> CORRECT ANSWER IS: D

(public controls based in police power) Downzoning occurs when the zoning regulations are changed from a higher, more active use, to a lower less active use.


Valid restrictive covenants:

A. restrict what an owner may do on his own land
B. run with the land
C. may appear in a lease
D. all of the above

>> CORRECT ANSWER IS: D

(private controls) All of the listed statements are true about valid deed restrictions. To “run with the land” means that the restrictions remain with the property as it passes from owner to owner.


Paul Property Owner makes significant improvements to a lot that he has held for seven years. Which of the following is most likely true regarding Paul’s improvements?

A. Paul’s land will increase in value
B. Paul’s land will decrease in value
C. Paul is developing a subdivision
D. either 1 or 2

>> CORRECT ANSWER IS: D

(commercial property/income property) Improvements may have a positive or negative affect on the economic value of the land and surrounding areas, depending on the type of development or improvement.


A property has a deed restriction that prohibits raising livestock. However, local zoning permits livestock on the property in question. May the property owner raise livestock?

A. no, because the owner must follow the deed restriction over the zoning ordinance
B. no, because the deed restriction existed before the zoning ordinance
C. yes, because private agreements cannot overrule a zoning ordinance
D. yes, because estoppel will prevent enforcement of the deed restriction

>> CORRECT ANSWER IS: A

(public controls based in police power; private controls) Deed restrictions may always be more restrictive, but never less restrictive than zoning laws. Therefore, the owner must follow a more restrictive (but legal) deed restriction. Being more restrictive is not equivalent to “overruling” a zoning ordinance–a more restrictive requirement remains consistent.


Private restrictions on the use of land may be created by:

A. deed only
B. written agreement
C. general restrictions in a subdivision’s regulation
D. all of the above

>> CORRECT ANSWER IS: D

(private controls) Private restrictions on the use of land may be created by any of instruments cited above. These are restrictions that are placed on the property by the owner.


The right of a city government to take title to private property for public improvements is subject to all of the following, except:

A. the ownership interest held by the current owner
B. public purpose
C. economically profitable uses of the land by the owner
D. both 1 and 3

>> CORRECT ANSWER IS: D

(government rights in land) The exercise of eminent domain requires a public use and just compensation for the taken property. The ownership interests of the current owner and whether the use is economically viable is irrelevant.


The State of Order plans to condemn several pieces of inner city property in order to build a sports complex. This will displace many poor families. The State of Order then plans to lease the assembled property to three private citizens, who will operate the complex. Is this use of eminent domain consistent with the US Constitution?

A. yes, but only if the lots are vacant
B. yes, if just compensation is paid to the land-owners
C. no, because there is no public purpose
D. no, because condemned property cannot benefit private individuals

>> CORRECT ANSWER IS: B

(government rights in land) The state has the power to do this through its power of eminent domain. The construction of a sports complex could be considered in the public good because it would create taxes and offer employment. The US Supreme Court has upheld the taking of property for private use, while recognizing that states may impose different standards (including legislation which prohibits taking property for private use). Therefore, while states CAN take property for private use consistent with the US Constitution, they may also choose not to.


An area in which zoning regulates the specific balance of shopping, business, and recreational facilities is an example of:

A. urban renewal
B. mixed zoning
C. PUD
D. commercial condition zoning

>> CORRECT ANSWER IS: C

(subdivisions) Planned Unit Developments (PUD) are mixed-use developments that use zoning ordinances to achieve a desired balance.


If a broker employs a property manager, an agency relationship is created. This agency is considered to be:

A. specific
B. general
C. managerial
D. universal

>> CORRECT ANSWER IS: B

(property management and landlord/tenant) A property manager is a textbook example of general agency (i.e., a person empowered to do a number of things for the principal). 


Which of the following could be an enforceable deed restriction?

A. exterior design
B. building size
C. limitations on the height of trees
D. all of the above

>> CORRECT ANSWER IS: D

(private controls) A deed restriction is a limit on property use, placed on the property by the owner. It could control and restrict the use of the property for any of the reasons given. It CANNOT be a restriction that is in violation of the law, such as Fair Housing laws.


Henry enters into an exclusive right-to-sell listing agreement with Bob the Broker. The parties agree upon a 5% commission. Bob presents an offer to Henry which he accepts. At closing, Henry discovers that the customary commission is 3%. Feeling as if he was taken advantage of, Henry refuses to pay Bob any more than a 3% commission. Is the listing still effective?

A. yes, because Henry breached the agreement
B. no, because Bob produced a ready, willing, and able buyer
C. yes, unless a 6% commission is excessive
D. no, because Bob violated a fiduciary duty

>> CORRECT ANSWER IS: B

(law, definition, & nature of agency relationships) Make sure you read the question carefully! This question does not ask whether Bob will get his commission; it asks whether the listing is still in effect. Agency relationships terminate upon completion of the employment objective. In this case, the employment objective is to produce a ready, willing, and able buyer. According to the facts, Broker Bob satisfied his end of the bargain. 


Which of the following is NOT required in an open listing?

A. signature of the principal
B. definite termination date
C. agreed upon commission or fee
D. description of the property

>> CORRECT ANSWER IS: B

(common types of agency agreements) An open listing does not require a definite termination date–it will remain in effect for a “reasonable period” of time. However, the other elements are required.


A broker takes a listing and the owner later informs him that the roof leaks. The owner states that she is not going to repair the roof, even if the house is sold at full price. The broker must:

A. not mention the condition of the roof because of his fiduciary responsibility to the seller
B. advertise that the property is being sold “as is”
C. inform any prospective buyer of the condition of the roof
D. both 1 and 2

>> CORRECT ANSWER IS: C

(agency duties)  Merely advertising “as is” is not enough to satisfy disclosure requirements; however, material disclosures need not be listed in the initial advertisement. However, this material information must be specifically disclosed to a prospective buyer (beyond merely stating that the property is being sold “as is”).


Mr. Hardcase wants to reserve the right to sell his home to a co-worker, but without paying a commission. Which of the following listings best serves Mr. Hardcase’s interests?

A. an exclusive agency
B. an exclusive right-to-sell
C. a net listing
D. none of the above

>> CORRECT ANSWER IS: A

(common types of agency agreements) An exclusive agency listing would allow the owner to sell the home himself without being liable for a commission. A net listing is illegal in most states.


A broker can do which of the following?

A. accept, on behalf of the seller, a promissory note as an earnest money deposit
B. accept, on behalf of the seller, an offer OVER the listed price of the property
C. buy and sell property in his own name
D. represent both buyer and seller, with the permission of the buyer

>> CORRECT ANSWER IS: C

(agency duties) First, note that the term “accept” in this context means “agree to.” A broker may NOT accept (agree to) any terms or conditions contained in an offer. The broker’s job is to find a ready, willing, and able buyer. Any and all terms of the offer MUST be accepted (agreed to) by the seller. If a broker is going to represent both buyer and seller, he would need the approval of BOTH parties. However, a broker can sell property in his own name.


Jan accepts Jenny’s offer to purchase. Jenny’s salesperson delivers the downpayment to Jan’s salesperson. Jan’s salesperson delivers the funds to her broker, who places the money into escrow. Jan’s broker owes a fiduciary duty to:

A. Jan
B. Jenny
C. Jan and Jenny
D. none of the above

>> CORRECT ANSWER IS: C

(agency duties) Escrow agents owe fiduciary duty to both the buyer and seller. 


The legal relationship between broker and seller is generally:

A. special agency
B. general agency
C. universal agency
D. none of the above

>> CORRECT ANSWER IS: A

(law, definition, & nature of agency relationships) As a general rule, a listing agreement between the seller and the broker is a special or specific agency. The agent (broker) is authorized to do one act and one act only (sell property). Depending on the wording, a listing agreement could create something other than a special agency.


Two brokers agree that they will charge the same commission rate for all property listed by their offices. Such action:

A. is common practice
B. is in violation of anti-trust laws
C. is prohibited by RESPA
D. both B and C

>> CORRECT ANSWER IS: B

(commission and fees) The action of the brokers is in direct violation of antitrust laws. You should never discuss commission rates with another licensee.


Wilma lists her house with Broker Fred under an exclusive right-to-sell agreement. Fred later abandons the listing. Which of the following is true about this situation?

A. Wilma must maintain the listing with Fred until the expiration date
B. Wilma may terminate the listing
C. Wilma must wait 90 days before she can list the property with another broker
D. Wilma must file a notice of abandonment

>> CORRECT ANSWER IS: B

(law, definition, & nature of agency relationships) Abandonment by the agent terminates the listing automatically. No action is required by Wilma.


A broker, by virtue of a signed listing agreement, generally has the authority to do all of the following without consent of the seller, EXCEPT?

A. use the services of another broker
B. use the services of salespersons in his own brokerage firm
C. use the MLS to market the property
D. bind the seller to a full price offer

>> CORRECT ANSWER IS: D

(common types of agency agreements) Through the listing agreement, the seller employs the broker to produce a ready, willing, and able buyer in exchange for a commission. The broker may use the services of other brokers or his own salespersons in order to accomplish this act without the consent of the seller. However, as a general rule, the broker cannot accept or reject any offer (even if it’s a full price offer). The decision to accept or reject an offer always remains with the client.


Upon listing a property, a broker discovers water problems in the basement. The broker should inform:

A. the seller only if the broker is a seller’s agent
B. the buyer only if the broker is a buyer’s agent
C. both the buyer and the seller, regardless of who the broker represents
D. no one

>> CORRECT ANSWER IS: C

(agency duties) The broker must disclose all material adverse facts about the physical condition of the property that are known to the broker. Agents must disclose material facts to both buyers and sellers. 


A salesperson took a listing on a property that had a foundation crack due to water seepage. It’s obvious that the owner only filled in and painted over the crack, though the owner told the salesperson that the seepage problem had been properly corrected. If the salesperson shows the property without advising potential buyers of the seepage problem, the salesperson would be guilty of:

A. fraud
B. misrepresentation
C. puffery
D. nothing

>> CORRECT ANSWER IS: A

(material facts) This is fraud because it is an intentional concealment. The licensee is obligated to disclose known material facts about property.


While previewing a house, the salesperson notices water stains behind the draperies. When asked, the owner denied there were any water problems. If the salesperson shows the property and fails to mention the water stains, the salesperson is guilty of:

A. fraud
B. misrepresentation
C. nothing, because his fiduciary responsibility is with the owner
D. puffery

>> CORRECT ANSWER IS: A

(material facts)  Since they are evidence of leakage or flooding, water stains are material facts that must be disclosed if known by the salesperson. Because the salesperson knew of the stains and failed to disclose them, his conduct is fraudulent.


When showing and selling property, a salesperson must:

A. advise buyers of hidden property defects
B. avoid statements which may deceive the buyer
C. present all offers, even after the seller has already accepted
D. all of the above

>> CORRECT ANSWER IS: D

(material facts) Although a salesperson is an agent of the broker, who is an agent of the principal (seller), the salesperson acts as a fiduciary of the seller as a sub-agent. All offers must be presented to the seller. Both salespersons and brokers have an obligation to third parties (buyers) to inform them of material facts about the property.


Broker A shows a house with a faulty roof. When he finds out about the roof, should he tell the buyer/customer?

A. yes, it is an agency responsibility
B. yes, it is a material fact
C. only if he is a dual agent
D. only if he has the seller’s permission

>> CORRECT ANSWER IS: B

(material facts) The broker must disclose all material adverse facts about the physical condition of the property that are known to the broker.


Broker Marco was showing a tract of land with irregular boundaries. When asked about a boundary, Marco indicated that it ran from the edge of the stone wall to the creek. However, he knew that this was not exactly correct. After the buyer contracted for the property, she was shown a survey which reflected the true boundary. Was Marco guilty of misrepresentation?

A. no, verbal statements are not binding
B. no, the buyer was responsible for having the property surveyed
C. yes, the broker was responsible for verifying the official records
D. yes, because he knew his statement was not completely accurate

>> CORRECT ANSWER IS: D

(need for inspection, obtaining, verifying information) Broker Macro knowingly misrepresented the facts about the boundaries to the buyer. Therefore, he is guilty of misrepresentation or possibly fraud.


A real estate broker wishes to deposit an earnest money check in his business operating account so the purchaser can earn a higher interest rate on her funds. Can he do this?

A. Yes, if the purchaser receives a comparison of available interest rates
B. Yes, if the broker promises to insure such funds will be available at closing
C. No, these funds must be placed in a separate escrow account
D. No, the broker cannot guarantee a higher interest rate

>> CORRECT ANSWER IS: C

(trust accounts) All funds held on behalf of others must be deposited in a separate escrow account, NOT in the business operating account.


Employees generally:

A. work under direct supervision
B. hold regular office hours
C. choose how best to accomplish a task
D. both 1 and 2

>> CORRECT ANSWER IS: D

(broker/salesperson agreements) Employees generally work under their employer’s direct supervision and hold regular office hours. Independent contractors, not employees, are free to choose how best to accomplish a task based on their individual expertise.


According to the 1988 Fair Housing Law, which of the following is NOT considered to be handicapped?

A. a person addicted to alcohol
B. a person addicted to a controlled substance
C. a person who, by their actions, is believed to be insane
D. both 1 and 2

>> CORRECT ANSWER IS: B

(fair housing laws) Persons addicted to narcotics are not handicapped under the Fair Housing Law. However, alcoholics and the mentally ill are protected.


It would NOT be considered commingling of funds, if:

A. The broker holds an earnest money deposit check, at the request of the offeror, until acceptance by the offeree
B. The broker holds an earnest money deposit check, at the request of the offeror, after acceptance by the offeree
C. The broker holds an earnest money deposit in his personal account until the offer is accepted or rejected
D. The broker holds an earnest money deposit in his brokerage account because the deal is going to be all cash

>> CORRECT ANSWER IS: A

(trust accounts) Holding a check at the request of the offeror (buyer) until acceptance by the offeree (seller) is a normal practice and is NOT commingling. Once the offer is accepted, the money must be immediately placed in the escrow account. The broker must NEVER put money that belongs to others in his personal or brokerage account.


Who is required to comply with the Fair Housing Laws?

A. only real estate professionals
B. real estate professionals and lenders
C. real estate professionals, lenders, and insurance companies
D. everyone, unless specifically exempted by the law

>> CORRECT ANSWER IS: D

(fair housing laws) Fair Housing Laws apply to ALL people. Real estate professionals, lenders, and insurance companies are just more directly involved by the nature of their business.


A Hispanic family asks to see homes in the $125,000 to $140,000 price range. The broker only showed them property in integrated areas of the community, though there were appropriately priced homes in all-white areas of town. The broker is guilty of:

A. nothing, because the family did not specifically request to see homes in all-white areas
B. steering
C. blockbusting
D. gentrification

>> CORRECT ANSWER IS: B

(fair housing laws) This is a prime example of STEERING. The broker should show all properties that meet the needs and wants of the buyer client. However, if the broker offered to show property in a predominately Caucasian area and the buyers refused to look, that would be another story.


A real estate salesperson who engages in racial steering may be subject to all of the following EXCEPT:

A. suit in federal court by the Attorney General
B. immunity from suit due to broker’s primary liability
C. investigation by HUD
D. private suit for money damages

>> CORRECT ANSWER IS: B

(fair housing laws) A salesperson is not shielded from fair housing liability merely because he acts on behalf of his principal (the broker). The salesperson would be liable if he carried out an illegal act, regardless of who he did it for.


The Fair Housing Law protects seven groups. Which of the following is not specifically protected?

A. people of a particular religious group
B. pregnant women
C. illegal drug addicts
D. AIDS victims

>> CORRECT ANSWER IS: C

(fair housing laws) Protected classes include: race, color, religion, sex, national origin, handicapped, and familial status. Handicap does not include illegal drug addiction.


Many Korean families have purchased homes in a specific neighborhood of your community. Now, local merchants are marketing to the Korean clientele. A Caucasian resident listed his house with your firm and you add the property to the MLS. You also place a bilingual ad in the newspaper and a bilingual “For Sale” sign on the property. Are your actions discriminatory?

A. no, this is proper marketing practice
B. no, because you are targeting the market most likely to purchase the property
C. yes, because national origin is protected by the 1968 Fair Housing Law
D. yes, because bilingual ads are a form of steering

>> CORRECT ANSWER IS: A

(fair housing laws) The actions of the broker in this situation do not constitute a violation of the law.


Nice and Easy Loan Company has a policy of either restricting the availability or requiring lower LTV ratios for loans made in “high risk” areas of the community. This practice is known as:

A. steering
B. blockbusting
C. redlining
D. good business

>> CORRECT ANSWER IS: C

(fair housing laws) The practice described is known as redlining. As long as the lending policy is uniformly applied to all loan applicants, it does not constitute a Fair Housing violation.


All of the following are physical characteristics of land except:

A. situs
B. immobility
C. heterogeneity
D. indestructibility

>> CORRECT ANSWER IS: A

(land characteristics and property descriptions) Situs is an economic characteristic of land. Heterogeneity refers to uniqueness, which is a physical characteristic of land.


Agnes decides to impose a restrictive covenant (a negative covenant or deed restriction) that will apply to any future owners of the property she is currently in possession of. Agnes must have:

A. a lease
B. a fee simple estate
C. an easement
D. either 1 or 2

>> CORRECT ANSWER IS: B

(types of ownership) Only the holder of a fee simple estate may encumber the property with a deed restriction. This is one of the sticks (to encumber) included in her bundle of legal rights.


An appurtenant easement may be terminated by:

A. merger of the dominant and servient estates
B. condemnation of the servient estate through eminent domain
C. abandonment by the servient estate
D. all of the above

>> CORRECT ANSWER IS: A

(encumbrances) An appurtenant easement could be terminated by merging both estates under one owner, where the owner of the dominant estate releases the easement on the servient estate or when the owner of the dominant estate does not use the easement for a period of time (determined by statute) with an intent to abandon. If the servient estate is acquired by a government through the right of eminent domain, the easement remains. Abandonment by the servient estate will not terminate an appurtenant easement–abandonment must be by the dominant estate.


The most predictable element of severance is:

A. attachment
B. intent
C. agreement
D. adaptation

>> CORRECT ANSWER IS: C

(land characteristics & property descriptions) Always avoid doubt by reducing an agreement to writing. The written agreement is the best way to ensure questionable items like fixtures transfer.


A condominium association may do all of the following EXCEPT:

A. elect a Board of Directors
B. interview prospective buyers
C. award contracts to tradesmen
D. assess unit owners a fee to cover the cost of maintenance and repairs

>> CORRECT ANSWER IS: B

(types of ownership) The condominium association usually elects a Board of Directors to run the condominium. Prospective buyers buy condominiums directly from individual owners without being interviewed by the condominium association.


Jean transfers a fee simple interest in her property to her daughter Lisa, but reserves a life estate for herself. During Jean’s life time Lisa holds a:

A. a life interest, pur autre vie
B. remainder interest
C. a reversionary interest
D. a life estate

>> CORRECT ANSWER IS: B

(types of ownership) Lisa holds a remainder interest in the property until Jean dies. Then, Lisa will own the property in fee simple.


Which of the following is personal property?

A. apartment lease
B. business reputation
C. tool shed attached to the brick foundation
D. both A and B

>> CORRECT ANSWER IS: D

(classes of property) Leases and business reputation are both intangible personal property.


A homeowner makes monthly mortgage payments of $994.32. When the current payment was made, $871.40 was applied to interest and the balance was applied to principal. If the loan interest rate is 10-5/8%, what was the balance of the loan when the payment was made?

A. $82,014.12
B. $87,140
C. $98,416.94
D. $104,568

>> CORRECT ANSWER IS: C

(calculations for transactions) The term of the loan is NOT required to answer the question. The following equation solves the problem:

  • Annual Interest = Monthly Interest x 12
  • Annual Interest = $871.40 x 12 = $10,456.80

Convert the loan interest rate to a decimal format:

  • Interest Rate = 10-5.8% = 10.625% = 0.10625

Now, we can use these numbers to calculate the loan balance at the time:

  • Interest paid = Loan Balance x Interest rate
  • Loan Balance = Interest Paid / Interest Rate
  • Loan Balance = $10,456.80 / 0.10625 = $98,416.94

Fabian owns a lot that measures 80 feet by 20 feet. What is the area of his lot?

A. 1,500 square feet
B. 1,600 square feet
C. 1,400 square feet
D. 1,200 square feet

>> CORRECT ANSWER IS: B

(general math concepts) Determine Fabian’s area as follows: 

  • Area = length x width 
  • Area = 80ft x 20ft = 1,600 sq. ft.

Mr. Jones’ property is valued at $17,700. It is assessed at $10,000 and is taxed at a rate of $0.036 per dollar. If the tax is increased to $0.040 per dollar with the same assessment, how much more will Jones be required to pay?

A. $360
B. $36
C. $400
D. $40

>> CORRECT ANSWER IS: D

(property tax calculations) First, determine the increase in the tax rate:

  • Tax Rate Increase = $0.040 – $0.036 = $0.004 per dollar

Now, apply the following formula:

  • Assessed Value x Tax Rate Increase = Total Tax Increase
  • $10,000 x $0.004 = $40 Tax Increase 

Bob and Sue make a combined annual income of $80,000 and pay $1,200 in monthly rent. What percentage is the rent of Bob and Sue’s annual income?

A. 18%
B. 25%
C. 17%
D. 33%

>> CORRECT ANSWER IS: A

(general math concepts) First, determine the annual rent as follows: 

  • Annual rent = $1,200 x 12 = $14,400. 
Next, determine the percentage of the annual rent to Bob and Sue’s annual income as follows: 
  • $14,400 / $80,000 = 0.18 
  • 0.18 = 18%

A $90,000 property has a gross income of $10,000 a year. Management fees are $800 annually, and heating is $85 per month. What is the approximate rate of return to the owner?

A. 7%
B. 8%
C. 9%
D. 12%

>> CORRECT ANSWER IS: C

(calculations for valuation) First, calculate the annual expenses for the property: 

  • Heating = $85 x 12 = $1,020 annually
  • Annual Expenses = $800 + $1,020 = $1,820 

Then, use this information to calculate the rate of return

  • NOI = $10,000 – $1,820 = $8,180
  • Cap Rate = $8,180 / $90,000 = 0.0909 = 9% rate of return

What are fees charged for the privilege of buying or selling property in a particular jurisdiction?

A. Excise taxes
B. Ad valorem taxes
C. Special assessments
D. None of the above

>> CORRECT ANSWER IS: A

(tax aspects) Excise taxes (also known as transfer and recording taxes) are fees charged by local jurisdictions for the privilege of buying or selling real estate in that jurisdiction. Transfer taxes are generally paid by the seller, grantor, or lessor and are usually based on the sales price of the property. 


Dan has a loan secured by his home through Bank Trust Company (BTC). Dan has failed to make several mortgage payments to BTC and as a result, BTC has begun to send collection notices. If Dan files for bankruptcy, BTC must:

A. Send Dan a notice of acceleration before it can continue its collection efforts
B. Send Dan a notice of foreclosure before it can proceed with foreclosure
C. Send Dan a notice of forfeiture
D. Stop all collection activity during the pendency of Dan’s bankruptcy petition

>> CORRECT ANSWER IS: D

(special processes, bankruptcy) When someone files a petition for bankruptcy protection, a creditor must cease all collection activity until the petition is discharged. Therefore, pursuing any kind of collection action, such as acceleration or foreclosure, would be improper. A notice of forfeiture would be a form of collection activity, but would not be sent by BTC since forfeiture is used for the breach of a land installment contract, not the breach of a mortgage contract.


Quincy sold a piece of property to Ralph, and transferred title through a quitclaim deed. Later, a court determined that Quincy did not own the property. Which of the following is true in this situation?

A. Ralph owns the property because the court action was after he bought after title transferred
B. Ralph has no interest in the property
C. Ralph has a good claim against Quincy for misrepresentation
D. Both B and C

>> CORRECT ANSWER IS: B

(types of deeds) With a quitclaim deed, the grantor does not promise that he has any interest or rights to convey. Because Quincy had no interest, he had nothing to sell, and Ralph has no interest in the property. On these facts, Ralph has no basis for a suit because through the quitclaim deed, Quincy never asserted he had an interest at all.


Each closed real estate transaction requires a report to be filed with the IRS on form 1099. Required information includes the seller’s name, social security number, and:

A. Buyer’s name and social security number
B. The selling price of the property
C. The name of the mortgage lender
D. A legal description of the property

>> CORRECT ANSWER IS: B

(tax aspects) The selling price of the property is included on the 1099. This is the amount of income the seller received. At tax reporting time, this sale is subject to adjustments when calculating the actual tax due.


All of the following represent a transfer of real property that takes place on the death of an owner except:

A. Escheat to the state
B. Transfer by devise
C. Transfer by descent
D. Transfer by eminent domain

>> CORRECT ANSWER IS: D

(conveyances after death) Escheat is when a deceased owner has no will or heirs, so the property transfers back to the state. However, in most situations, the title immediately passes to the person it is devised to in a will. Transfer by descent states that in the absence of a valid will, the living heirs will inherit the estate. Meanwhile, eminent domain is the right of government to take ownership of private property, so long as it is taken for a legitimate public use and just compensation is paid to its (still alive) owner.


Which of the following is NOT prorated between buyer and seller at closing?

A. Recording fees
B. Real estate taxes
C. Rents
D. Home owner’s insurance premiums

>> CORRECT ANSWER IS: A

(tax aspects) Recording fees are NOT prorated; each party pays his own. If insurance premiums have been paid in advance by the seller, they would be prorated if the buyer assumes the insurance policy. However, this is not as common a practice as it once was.


A court action to remove a cloud from the title is called an action or suit:

A. For specific performance
B. For title insurance
C. To quiet title
D. Of legal injunction

>> CORRECT ANSWER IS: C

(title defects) A court action (suit) for the removal of a defect, cloud, or claim against the title of a property is called a suit to quiet title.


Which of the following appraisal approaches would be considered most reliable when appraising a public library?

A. Market data
B. Capitalization
C. Income
D. Cost

>> CORRECT ANSWER IS: D

(methods of estimating value) Since there would be few comparable sales for a special use property (market data) and no net income (income approach), the cost approach is the most reliable method. The cost approach is always used for any special use or historically significant properties.


Which of the following is a formal estimate of property value?

A. BOV
B. BPO
C. Appraisal
D. Both B and C

>> CORRECT ANSWER IS: C

(nature of value) A broker opinion of value (BOV) or broker price opinion (BPO) is an informal estimate of market value based on comparable sales in the neighborhood. By contrast, an appraisal is a formal estimate or opinion of property value, performed by a state licensed or certified professional appraiser and supported by the presentation and analysis of detailed data.


Which appraisal approach accounts for replacement or reproduction costs?

A. Market Data
B. Income
C. Cost
D. Gross Rent Multiplier

>> CORRECT ANSWER IS: C

(methods of estimating value) When an appraiser is using the COST approach, she calculates the costs of building by either the replacement cost (similar materials and amenities) or reproduction cost (an exact duplicate) for the subject property.


A buyer looked at four similar houses for sale in the same neighborhood. The buyer purchased the house with the lowest asking price. This decision is an example of:

A. Highest and best use
B. Contribution
C. Supply and demand
D. Substitution

>> CORRECT ANSWER IS: D

(principles of value) The principle of substitution states that the value of property tends to be influenced by the value of an equally desirable property. If the properties were equally desirable, the buyer would select the one with the lowest price. While the law of supply and demand also determines cost, the principle of substitution best describes one’s choice among similar alternatives.


The three approaches to appraisal are:

A. Replacement; Market data; Cost
B. Income; Cost; Market data
C. Capitalization; Replacement; Market data
D. Reproduction; Market data; Income

>> CORRECT ANSWER IS: B

(methods of estimating value) The three approaches are income, cost, and market data. The other answers include methods included within the three approaches.


There is a geometric theorem which states that “the whole is equal to the sum of its parts.” In real estate, there is a theorem that states “the whole can be GREATER than the sum of its parts.” This is an example of:

A. Plottage
B. Depreciation
C. Accretion
D. Progression

>> CORRECT ANSWER IS: A

(principles of value) With plottage, two or more merged properties may result in a value greater than the sum of each individual property value. This increase in value is called plottage value.


Real estate salespeople often prepare a CMA when making listing price recommendations. Which principle is a CMA primarily based upon?

A. The principle of conformity
B. The principle of contribution
C. The principle of substitution
D. The principle of highest and best use

>> CORRECT ANSWER IS: C

(methods of estimating value) A CMA, or competitive market analysis, is based on the valuation principle of substitution. This states that an informed buyer will pay no more for property than the cost to acquire an equally desirable piece of real estate.